Thursday, September 13, 2012

Latvia cuts rate 50 bps to bolster economy as inflation falls

    The central bank of Latvia cut its key refinancing rate by 50 basis points to 2.5 percent to help counter the negative effects of Europe's debt crises on the country's economy while inflation continues to recede. The bank also cut its marginal facility rates by 100 basis points.
    The Bank of Latvia said the previous cut in the refinancing rate in July and cuts in marginal facility rates in March "will provide the banks with an additional stimulus to direct available lats resources for economic development."
    In addition to its refinancing rate, the Bank of Latvia also cut its overnight deposit rate to 0.050 percent from 0.10 percent and the seven-day deposit rate to 0.075 percent from 0.125 percent.
    The bank's three marginal facility rates were reduced by 100 basis points each. 

    The rate for the facility that is used for up to five days was cut to 3.0 percent from 4.0 percent, the rate for using it for maximum 10 days was cut to 6.0 percent from 7.0 percent and the rate for using the facility for more than 10 days was cut to 9.0 percent from 10.0 percent.
    "In view of the fact that risks for price stability in the medium term are limited and inflation continues to go down as well as the expected negative influence of the European debt crisis on the Latvian economy, the Bank of Latvia council today resolved to reduce interest rates set by the Bank of Latvia," the bank said.
    When the Bank of Latvia cut its refinancing rate by 50 basis points in July, it left the marginal facility rates unchanged.
    In March this year the bank cut its marginal facility rates as interbank markets started to normalize following tensions late 2011. Marginal rates were initially raised in December 2008 to stimulate the interbank money market as the global financial crises started to spread.
    Latvia's inflation rate was steady in August from July at 1.7 percent, while the economy's annual growth rate eased to 5.0 percent in the second quarter from 6.9 percent in the first quarter.    
     Latvia plans to introduce the euro currency in 2014.


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