On the Resolutions of the Bank of Latvia Council

Riga, 11 January 2007

In view of raising the refinancing rate two months ago, the Bank of Latvia Council today resolved not to change neither the interest rates pertaining to refinancing, bank deposits with the Bank of Latvia, and Lombard loans, nor the minimum reserve requirement and the procedure for its calculation.

It must be noted that the imbalance in the economy continued to increase in this period along with the rapid development as evidenced by the persistently high inflation, large current account deficit and rapidly increasing external debt. The current rate of growth is primarily being driven by those sectors that are directed at satisfying the domestic demand and are by themselves incapable of guaranteeing sustainable economic development. According to Bank of Latvia’s assumptions, a slowdown in the rate of growth and thus a decrease in the country’s macroeconomic imbalance are to be expected in the near future. For that to be the case, a number of preconditions have to obtain: rising compensations for labour matched by increases in productivity; a slowdown in lending rates; a shift in emphasis from crediting domestic consumption to crediting production and export, as well as fiscal policies stricter than the ones planned. If not, there is an increased risk of economic stagnation caused by overheating.

The following interest rates set by the Bank of Latvia remain:  
- refinancing rate - 5.0% per annum;
- interest rates for bank deposits with the Bank of Latvia:
            - with a seven-day maturity - 2.0% per annum,
            - with a fourteen-day maturity - 2.25% per annum;
- Lombard loan interest rates:
            - up to ten days - 6.0% per annum,
            - 11th through 20th day - 7.0% per annum,
            - starting with the 21st day - 8.0% per annum.

The current refinancing interest rate as well as Lombard lending rates have been in effect since 17 November 2006 and the bank deposit rates since 16 September 2002.

The reserve requirement for banks and foreign bank branches has been 8% since 24 December 2005.