The Bank of Latvia

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Bank of Latvia

In the first quarter, the Bank of Latvia's average daily credit was 52.2 million lats (a quarter-on-quarter increase of 16.5 million lats). The amount of credit granted during the quarter, 509.2 million lats, was considerably larger (4.3 times) than in the previous quarter. Credit to banks (35.0 million lats) was smaller at the end of March than at the end of December. In the first quarter, in contrast to the previous quarter when the largest part of credit was loans under repurchase agreements, demand Lombard loans were issued in a significant amount (390.2 million lats). Automatic Lombard loans were granted in the amount of 1.9 million lats, and loans under repurchase agreements, in the amount of 117.1 million lats (a 24.3% increase). The maturity profile of loans under repurchase agreements revealed an increase in 7-day loans (from 70.0% of the total in the fourth quarter of 2000 to 78.8% in the first quarter of 2001). Of the total, 20.2% was 28-day loans and 1.0% was 91-day loans.

Banks' demand for loans was determined by low liquidity at the end of January and in February. As the supply of loans under repurchase agreements was limited, in February repo rates were close to interest rates on Lombard loans, in some cases even higher. In the first quarter, the weighted average interest rate of loans under repurchase agreements rose to 5.49% (4.15% in the fourth quarter), including 5.87% in February. To meet the reserve requirement, banks used also Lombard loans in February and March. The weighted average interest rate of Lombard loans rose from 5.50% to 5.64%, because the maturity of these loans exceeded ten days. Towards the end of March, liquidity gradually improved, as the balance on currency swaps continued to grow and the government increasingly placed its funds with the banking sector.

In the first quarter, the Bank of Latvia did not intervene in the secondary market for government securities; however, to fine-tune the money supply, the Bank held several tenders of reverse repurchase agreements in January. In tenders, the Bank sold to banks government securities in the amount of 9.5 million lats, with 7-day maturity and at the weighted average interest rate of 4.24%.

In the first quarter, the Bank of Latvia received from banks time deposits in the amount of 30.9 million lats, which was 32.2% smaller than that received in the previous quarter. Of time deposits, 57.9% was 15-day deposits. Interest rates on time deposits remained unchanged in the first quarter: 1.5% on 7-day deposits and 1.75% on 15-day deposits. The Bank of Latvia refinancing rate and interest rates on Lombard loans also did not change.