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Bank of Latvia

The Bank of Latvia » For All » Monetary Policy

Monetary Policy of the Bank of Latvia


Key objective of the monetary policy
The key objective of the central bank's monetary policy is to facilitate favourable macroeconomic environment for growth of the national economy in the long term. The course of the global economic development suggests that the monetary policy can best contribute to the economic growth, employment and financial stability by ensuring low inflation rate. By maintaining price stability, the central bank creates a stable and predictable business environment. For this reason, the majority of sovereign central banks across the world have declared maintenance of a low and stable long-term inflation rate as their principal goal.

Pursuant to the Law "On the Bank of Latvia", the primary objective of the Bank of Latvia's monetary policy is likewise to maintain price stability in the country.

What changes are expected in Latvia in this respect when Latvia joins the European Economic and Monetary Union (EMU)?
When Latvia has joined the EMU and the euro has been introduced, the monetary policy of the European Central Bank (ECB) will be implemented in Latvia and the same monetary policy instruments will be used as everywhere in the euro area. The Bank of Latvia is getting ready for the implementation of the ECB single monetary policy. The monetary policy instruments of the Bank of Latvia are already in line with those used in the euro area. Like the ECB, the Bank of Latvia also uses reserve requirements, market operations, as well as standing facilities of lending and deposit of funds (further information is available on the ECB website http://www.ecb.int). Specific details remain to be harmonised: procedures of performing monetary operations, their regularity and timelines. The planned reduction of the reserve requirement for banks to 2% set by the ECB will take place gradually.