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Press release of September 9, 2004

At its September 9 regular meeting, the Council of the Bank of Latvia resolved to leave unaltered the refinancing rate and the interest rate on bank deposits with the Bank of Latvia and Lombard loans.

In August, 2004, the annual inflation rate reached 7.8% driven by concurrence of several adverse factors, i.e. a significant rise in prices of vegetables and fruit due to poor crops, rise of the administratively regulated prices, amendments to tax and insurance laws, historically high global oil prices as well as the persistently robust domestic demand.  

Considering the existing and future impact of the above factors on consumer prices, the Bank of Latvia's Council revised the 2004 average annual inflation forecast upwards from 4.5% to 7.0%.

Most of the above factors fall on the supply side, their impact is short-lived and does not require immediate changes to the Bank of Latvia's monetary policy. In order to decide on the required further action, the Bank of Latvia will await and analyse the economic growth data on GDP and the balance of payments in the second quarter, central government budget performance as well as look back and assess the impact of the Bank's previous resolutions, including increasing the minimum reserve requirement, on lending and other economic indicators from a longer-term perspective.

The current interest rates set by the Bank of Latvia are as follows:
– the refinancing rate – 3.5% 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 approved the new edition of "Regulation for Compiling the 'Quarterly Foreign Investment Report'", "Regulation for Compiling the 'Quarterly Foreign Investment Report'" and "Regulation for Buying and Selling Cash Foreign Currency".

Amendments to "Regulation for Compiling the 'Quarterly Foreign Investment Report'", "Regulation for Compiling the 'Quarterly Foreign Investment Report'" (the new editions come into effect on 01.01.2005) have been introduced with a view of improving the quality of information used in preparing the national balance of payments and achieving better compliance with the requirements of international financial institutions (European Central Bank, International Monetary Fund). The most significant change in "Regulation for Compiling the 'Quarterly Foreign Investment Report'" is that, starting with the first quarter of 2005, the Bank of Latvia will collate information on flow indicators (changes caused by transactions, price changes, changes caused by exchange rate fluctuations, other changes) from reporting companies.

The new edition of the "Regulation for Buying and Selling Cash Foreign Currency" (comes into effect on 01.10.2004) has been harmonised with the recommendations of the Financial Action Task Force on Money Laundering (FATF) as well as  the Law "On Credit Institutions", "Commercial Law", Law "On Electronic Documents" and the Bank of Latvia's "Regulation for Preparing and Submitting Non-Banks' Statistical Reports in Electronic Form".

The most significant amendments relate to the FATF recommendations. Following the terrorist attacks of September 11, 2001, the FATF has expanded the scope of its operation and is actively engaged in combating terrorist financing. In order to prevent money laundering, it has developed recommendations and explanations thereof.

Due to this reason, the section of the Regulation governing the obtaining of licences for buying and selling foreign currencies has been expanded. It has been stipulated that, prior to registering changes of participants and representatives of the executive body with the Register of Enterprises of the Republic of Latvia (Commercial Register), companies have an obligation to agree those changes with the Bank of Latvia. Some paragraphs of the Regulations that previously applied to the owners of the company will apply to the participants and representatives of the executive body. Firstly, it is a requirement that these persons must have a good reputation. Secondly, in order to obtain a licence, the company must submit information on participants (up to the level of physical persons), and representatives of the executive body.