Monetary Base
The monetary base, M0 [1], grew by 8.9% (by 7.7% in 2000), amounting to 617.1
million lats at the end of 2001 (see Chart 7). As the demand for cash rose
(currency in circulation increased by 73.7 million lats or 15.3% in 2001),
credit institutions' deposits with the Bank of Latvia declined (by 23.4 million
lats or 27.7%). The average end-of-day balance on such deposits, 89.3 million
lats, was 3.7% higher than in 2000, because, with the deposit base increasing,
the amounts to be held under the reserve requirement were larger. The cash
component of the monetary base increased to 90.1% (85.1% at the end of 2000).
Chart 7
Monetary Base
(in millions of lats)
 |
Monetary base |
 |
Currency in circulation |
The growth in the monetary base was mainly effected by an increase of 218.7 million lats or 40.5% in net foreign assets, which resulted from the Bank of Latvia's purchases of foreign currencies (in the reporting year, the net amount of foreign currencies bought was 131.7 million lats, the largest amount since 1993) and the inclusion of the Government's proceeds from the November issue of eurobonds in the Bank of Latvia's foreign assets. A 17.5 million lats increase in the currency swap balance also contributed to the growth in the money supply. As a result, the Bank's net foreign assets reached a historical high of 759.2 million lats at the end of 2001 (see Chart 8), equalling 4.1 months' imports in December (3.4 months' imports in December 2000). The backing of the national currency with the Bank's net foreign assets reached 123.0% (95.4% at the end of 2000).
Chart 8
Net Foreign Assets of the Bank of Latvia
(in millions of lats)
The Government's deposit with the Bank of Latvia increased by 73.7 million lats. The Bank's portfolio of government securities declined by 27.0 million lats. Although, the Bank of Latvia's credit to banks, as at the end of year, decreased by 23.7 million lats, the total amount of credit extended by the Bank of Latvia to banks during the year increased 10.0 times over the 2000 level (to 3 233.1 million lats), because banks used the Bank of Latvia's lending facility (in particular Lombard loans) to offset liquidity fluctuations and meet the reserve requirement. Of the Bank of Latvia's credit to banks, 72.3% was demand Lombard loans, 27.1% was loans under repurchase agreements and 0.6% was automatic Lombard loans (for monthly average balances on the Bank's credit, see Table 3).
Table 3
The Bank of Latvia's Credit to Banks
(average balances; in millions of lats)
|
1999 |
2000 |
2001 |
|
|
January |
42.5 |
54.9 |
42.5 |
|
February |
60.7 |
41.5 |
74.8 |
|
March |
74.9 |
39.6 |
41.6 |
|
April |
71.0 |
38.6 |
39.6 |
|
May |
55.7 |
46.3 |
66.3 |
|
June |
48.7 |
43.2 |
89.2 |
|
July |
42.4 |
43.5 |
73.2 |
|
August |
37.9 |
36.1 |
63.2 |
|
September |
48.1 |
37.0 |
70.0 |
|
October |
38.2 |
36.6 |
76.8 |
|
November |
40.0 |
31.5 |
69.8 |
|
December |
53.1 |
38.7 |
63.5 |
Loans under
repurchase agreements were predominantly of 7-day maturity (804.3 million lats).
Repo loans of 28-day maturity and 91-day maturity were issued in the amount of
59.7 million lats and 12.7 million lats, respectively. Year-on-year growth was
observed in loans under repurchase agreements (3.0 times), demand Lombard loans
(99.4 times; to 2 336.9 million lats) and automatic Lombard loans (4.1 times; to
19.5 million lats).
Chart 9
Interest Rates in the Money Market
(%)
|
The Bank of Latvia's refinancing rate |
|
|
Weighted average repo rate |
 |
Weighted average yield on 6-month bills |
 |
Weighted average interest rate on domestic interbank loans in lats |
[1] Currency in circulation plus deposits with the Bank of Latvia.