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Press release of November 11, 2004

At its November 11 regular meeting, the Bank of Latvia's Council resolved to raise the refinancing rate by 0.5% points to 4.0%, in order to facilitate balanced long-term economic development and reduce domestic demand. The interest rates on Lombard loans and time deposits remained unchanged. (The Resolution takes effect as of 12.11.2004)

In order to unify the bank competition conditions and slow down the quickly growing borrowing of the Latvian banks from foreign banks, the Bank of Latvia's Council resolved also to introduce amendments to the "Regulation for Calculating and Fulfilling the Minimum Reserve Requirement for Banks", stipulating that starting from January 24, 2005 the minimum reserve base shall include bank liabilities to foreign banks and foreign central banks with an agreed maturity or redeemable at notice of up to 2 years.

The Council of the Bank of Latvia based its decision on the following considerations.

Domestic demand remains strong. To a large extent, Latvia is currently the fastest growing economy in the European Union particularly due to the domestic demand. At the same time, the price rise, driven by the strong domestic demand, is also the steepest in Latvia, whereas the current account deficit is the second largest in the EU. Expansion of lending remains strong. Moreover, current uncertainty as to the size of the next year's budgetary deficit causes some concern.

Therefore, the current interest rates set by the Bank of Latvia are as follows:
– the refinancing rate – 4.0% per annum;
– the interest rates on bank deposits with the Bank of Latvia:
                        – 2.0% per annum for 7-day deposits,
                        – 2.25% per annum for 14-day deposits;

– the interest rate on Lombard loans:
                        –        5.0% per annum for loans with maturity of up to 10 days,
                        –        6.0% per annum for loans with maturity from 11 to 20 days,
                        –        7.0% per annum for loans with maturity 21 days and more.

The Bank of Latvia's Council introduced amendments to the "Regulation for Preparing the Monthly Financial Position Report of Credit Institutions and Appendices to the Report", renaming it the "Regulation for Preparing the Monthly Financial Position Report of Monetary Financial Institutions and Appendices to the Report" (amendments in effect as of 01.01.2005).

The main objective of the amendments is to harmonise the terminology with the European Central Bank's regulation concerning the consolidated balance sheet of the Monetary Financial Institutions sector (ECB/2001/13) as well as to adjust to the changes in Latvian legislation relating to electronic money. In particular, the regulation provides a definition of a monetary financial institution (MFI), establishes the procedure for development and updating of the MFI list of the Republic of Latvia as well as replaces several terms, e.g. "non-banks" by "non-MFI", "company" by "non-financial corporation", "private persons" by "households" etc.

The Bank of Latvia's Council approved the "Recommendations to Businesses (Commercial Companies) and Business  People Engaged in Sales and Purchase of Cash Foreign Currency for Developing Internal Control Systems for Preventing Money Laundering and Combating Terrorist Financing" (in effect as of 01.12.2004). This document will replace "Recommendations to Currency Exchange Bureaus for Developing Procedures for Identification of Suspicious and Unusual Transactions".

The Bank of Latvia's Council stipulated that businesses (commercial companies) and business people to whom licences to sell and buy cash foreign currencies have been issued must review their procedures for identification of suspicious and unusual transactions in light of those recommendations by January 31, 2005. 

The new recommendations provide a clearer description and govern actions to be taken in order to prevent suspicious and unusual transactions and money laundering and combat terrorist financing. The list of indications pointing to suspicious and unusual financial transactions has been complemented as well as the identification of suspicious and unusual financial transactions has been supplemented with client identification and other innovations have been introduced.