Riga, 17 January 2008

On Resolutions Passed by the Bank of Latvia Council

The Bank of Latvia Council resolved today to raise the interest rate of the central bank on overnight deposit facility from 2.0% to 3.0%, leaving the other interest rates of the central bank unchanged, and to reduce the reserve ratio for bank liabilities with a maturity of over 2 years from 8% to 7%. Both resolutions will take effect as of 24 February 2008.

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, there is a possibility to somewhat loosen the so far tight monetary policy framework for the financial market and thereby enhance the stimuli for the financial sector to attract long term funding; in addition to the measures already undertaken by the Bank of Latvia, the recent movements in the global financial markets also have an upward impact on the costs of crediting in Latvia.

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 refinancing rate was last raised on 18 May 2007 by 0.5 percentage point to 6.0%. The minimum reserve requirement for banks and branches of foreign banks has remained unchanged since 24 December 2005 when it was set at 8%.

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 8% to 7% 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.