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Press release of 15 March 2007

Considering the macroeconomic development trends in Latvia, the need to support the government's efforts to curb inflation and the rising interest rates in the euro area the Bank of Latvia's Council, at its today's meeting, resolved to raise the refinancing rate by 0.5 percentage point to 5.5%. The Bank of Latvia's marginal lending facility rate at 6.5% and deposit facility rate at 2.0% were also set. The Council resolved to leave the minimum reserve ratio and its calculation procedure unchanged.
The above-mentioned resolution takes effect on 24 March 2007

As reported before, the structure and names of several rates set by the Bank of Latvia have been changed as of March in order to introduce improvements to the monetary policy instruments. Thus, one marginal lending facility rate will now be used instead of the Lombard loan rates and one deposit facility rate will replace the rates on bank deposits with the Bank of Latvia.

It has to be noted that since the last time when the Bank of Latvia raised the refinancing and Lombard rates in November 2006 the European Central Bank has raised the key interest rate on two occasions, by 25 basis points each, and currently it stands at 3.75%.

Alongside Latvia's rapid development, the economic imbalances have meanwhile continued to worsen as suggested by the key macroeconomic indicators: persistently high inflation, large current account deficit, and rapidly growing external debt. The growth of the gross domestic product reached an all-time-high last year at 11.9%, mainly on account of sectors relying on the domestic demand and unable to support sustainable long-term development on their own.

Therefore, the action plan for stabilisation of the national macroeconomic situation recently approved by the government is highly appreciated. The government's commitment to dampen the growth of lending, end this year and 2008 with a balanced budget and formulate a budget with a surplus for 2009-2010 implies a sound fiscal policy that takes into account the macroeconomic aspects. If consistently implemented, the plan could prove sufficiently effective to mitigate Latvia's macroeconomic development risks in the coming years.

Hence, as of 24 March 2007 the interest rates set by the Bank of Latvia will be as follows:
- the refinancing rate – 5.5% per annum;
- the bank deposit facility rate of the Bank of Latvia – 2.0% per annum;
- the marginal lending facility rate of the Bank of Latvia – 6.5% per annum.

As of 24 December 2005, the reserve ratio for banks and branches of foreign banks is 8%.

Alongside with the above, the Bank of Latvia's Council approved amendments to the 16 November 2006 Bank of Latvia's resolution "On Interest Rates on Monetary Operations", to align it with the new "Regulation for the Use of the Bank of Latvia's Monetary Policy Instruments"( more detailed information). Both the above-mentioned documents take effect on 24 March 2007. The resolution on monetary operation rates provides that the Bank of Latvia's refinancing rate is used as a marginal rate not only at the tenders of main refinancing operations (currently, repo tenders of securities with a maturity of 7 days) and short-term foreign exchange swaps selling lats with repurchase, but also at the tenders of longer-term refinancing operations buying lats with reselling and fixed-term deposit tenders.

To reflect the developments on the payment instruments market and the improvements of the European System of Central Banks (ECBS) payment and securities settlement systems methodology, the respective requirements of the Bank of Latvia have been updated. The Bank of Latvia's Council approved the"Regulation for Compiling Credit Institution Payment Statistics Report", which will replace the "Regulation for Compiling Credit Institution Payment Statistics" in effect since 1 July 1999 ( more detailed information). The new Regulation according to which the Latvian credit institutions, the same as before, will have to submit semi-annual payment statistics reports to the Bank of Latvia will come to effect on 1 July 2007.