lv

Riga, 13 March 2008

The Bank of Latvia Council resolved today to reduce the reserve ratio for bank liabilities with a maturity of over 2 years from 7% to 6%. The resolution will take effect on 24 April 2008. The central bank interest rates, i.e., those of refinancing, overnight lending and overnight deposit, will remain unchanged.

Taking into account the fact that the buoyant economic growth is gradually becoming more balanced and, along with a slower growth in lending, the banking sector's contribution to the rise in domestic demand is diminishing, it is possible to loosen the hitherto tight monetary policy framework for the financial market, thereby stimulating the financial sector to attract long term funding.

The interest rates set by the Bank of Latvia are as follows:

- refinancing - 6.0% per annum;
- overnight deposit facility - 3.0% per annum;
- overnight lending facility - 7.5% per annum.

 

The minimum reserve requirement for banks and branches of foreign banks was last changed on 24 February 2008, when it was reduced from 8% to 7% for bank liabilities with a maturity of over 2 years. The minimum reserve ratio, to stand at 8%, has remained unchanged since 24 December 2005.

The minimum reserve ratio is one of the monetary policy instruments of the central bank, and the aim of raising it is to increase the fund attracting costs of the banks, thereby affecting their lending capacity. The lowering of the bank minimum reserve ratio for bank liabilities with a maturity of over 2 years from 7% to 6% is expected to result in a decrease of 50 million lats in the minimum reserve requirement.

 

The bank minimum reserve requirement is calculated as a definite percentage of deposits attracted by banks and of securities issued by banks to be held with the Bank of Latvia; the amount of this requirement must be maintained as a monthly average. The compliance with the minimum reserve requirement is assessed within the maintenance period from the 24th day of the month to the 23rd day of the next month.

For detailed information about the monetary instruments of the Bank of Latvia see Press Release issued on 16 November 2006.