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Created on 12.05.2011

Taking into account the gradual recovery of the economy and the fact that the current inflation risk factors are not related to a rise in demand and risks to price stability in the medium term are limited, the Bank of Latvia Council today resolved to leave unchanged the interest rates and the mandatory reserve requirement for the banking sector set by the Bank of Latvia.

The latest Latvian economic indicators confirm that a gradual and slow economic recovery is currently taking place.

The rise in inflation at the beginning of the year is determined by supply side factors, i.e. the rise in global oil and food prices; and administrative decisions, i.e. the raising of taxes. Demand side is still acting as an inflation limiting factor: the development of wages and consumption is quite moderate; unemployment is dropping slightly yet it remains high, and bank lending is still contracting. Thus risks to price stability in the medium term are not significant and, as the prices of energy resources and food stop climbing in the foreign markets, inflation can be predicted to abating and stabilizing at a lower level – on the condition that taxes will not be subject to further raises.

The Report of the Governor of the Bank of Latvia, Ilmārs Rimšēvičs, at today’s press conference will be available in the news section of the Bank of Latvia’s home page www.bank.lv . 

 

The interest rates set by the Bank of Latvia are as follows:

 

In effect as of

% per annum

Bank of Latvia refinancing rate 

24.03.2010.

3.5

Bank of Latvia marginal lending facility rate to banks that have used the facility no more than 5 working days within the previous 30 day period

09.12.2008.

7.5

Bank of Latvia marginal lending facility rate to banks that have used the facility no more than 10 working days within the previous 30 day period

09.12.2008.

15.0

Bank of Latvia marginal lending facility rate to banks that have used the facility more than 10 working days within the previous 30 day period

09.12.2008.

30.0

Bank of Latvia overnight deposit facility rate

 

24.11.2010.

0.25

Bank of Latvia 7-day deposit facility rate

24.11.2010.

0.375

 

The Bank of Latvia Council approved amendments to the "Regulation for Calculating and Meeting the Banks' Mandatory Reserve Requirements", setting charge for non-compliance with reserve requirements in accordance to the European Central Bank regulation at 2.5 percentage points above the marginal lending facility rate and, for repeated non-compliance, at 5 percentage points above the said rate. Likewise, in accordance with the European Central Bank's regulation repeated non-compliance has been defined as non-compliance with the reserve requirements more than twice within any 12 month period.
The amendments will take effect from the next day after it is published in the official journal "Latvijas Vēstnesis".

The reserve requirement implies that credit institutions must keep a part of the attracted deposits with the Bank of Latvia. The reserve requirements as a monetary policy instrument ensures a greater stability of money demand and promotes efficiency of market operations, by limiting excessive interbank interest rate fluctuations.

In view of the fact that amendments to the Law "On Accounting" take place on 11 May providing for the procedure whereby a bank-issued account statement may be considered a source document and that the Law on Payment Services and Electronic Money provides for the information that should be provided for the user of a payment service in relation to operations within the payment account, the Bank of Latvia Council deemed the "Regulation for Preparing Bank Account Statements" null and void. The Regulation was developed to the aim of promoting a transition from payment information exchange in paper document form to one in electronic form within the Bank of Latvia's interbank payment systems in 1998.
The Regulation will become null and void on 13 May 2011.

Whereas the amendments to the Credit Institution law provide for the electronic monetary institutions to no longer be subsumed under the term "credit institution" and requirements for the operations of an electronic monetary institution will be provided for in the Law on Payment Services and Electronic Money the Bank of Latvia Council approved a new edition of the "Regulation for Compiling Credit Institution Payment Statistics" and approved amendments to the "Regulation for Compiling the Monthly Financial Position Report of Monetary Financial Institutions", making a number of editorial changes in these documents.
Both documents will take effect on 20 May 2011.

The Bank of Latvia Council made amendments to the "Regulation for Purchasing and Selling Cash Foreign Currencies", which include new requirements for capital companies for purchases and sales of foreign currencies.
Whereas divulging the data on natural persons is a serious violation and the aim of processing the data on natural persons is the prevention of legalization of financial means obtained by criminal activity, the Bank of Latvia's licensing committee is given the right to take decisions on suspending or annulling a capital company's licence if it violates the requirements set out in rules and regulations in the area of processing the data on natural persons.
The regulation is aimed to prevent the possibility that a client is sold currency that has been taken out of circulation in the respective country. The requirements for examining banknotes for counterfeit have been made more rigorous in addition to a number of other changes.
The aim of licensing this kind of commercial activity is to ensure meeting of the specific requirements that have been set for purchasing and selling cash foreign currencies as a financial service, including the ones in the area of physical safety of clients and confidentiality of their transactions; in the area of consumer rights; and in the area of prevention of legalization of financial means obtained by criminal activity. It is also to ensure a good reputation for the Latvian financial transaction market in the area of commercial activity involving purchasing and selling of cash foreign currencies.
The amendments will take effect on 1 September 2011.