Thursday, March 14, 2013

Latvia holds rate steady on low inflation and no risks

    Latvia's central bank held its benchmark refinancing rate steady at 2.5 percent, saying it's policy stance is appropriate in light of low inflation and no risks to price stability from economic growth.
   The Bank of Latvia, which cut rates by 100 basis points in 2012, also said it would retain its reserve requirement.
    In February Latvia's inflation rate fell to 0.3 percent from 0.6 percent, and in January the bank forecast 2013 inflation of 2.0 percent. The Bank of Latvia aims for price stability but does not have an actual inflation target.
    "Since the inflation indicators are consistently low and the rate of economic growth poses no risks to price stability in the medium term, the Bank of Latvia Council is of the opinion that the current stance of monetary policy is appropriate for the economic situation," the bank said.
    Latvia's Gross Domestic Product expanded by 1.4 percent in the fourth quarter from the third quarter for annual growth of 5.1 percent, slightly down from the third quarter's rate of 5.2 percent.
    The bank forecasts 2013 growth of 3.6 percent, down from 2011's 5.5 percent.
    Earlier this month Latvia's government applied to join the embattled euro zone with a final decision expected in July.

    Latvia pegged its currency to the single currency after joining the European Union in 2004 and stuck with the link through the past five years of financial and economic turmoil though many economists said it would have softened the economic downturn if it had devalued the currency. Latvia needed a bailout in 2009 by the International Monetary Fund and the EU.
    Neighboring Baltic state Estonia already joined the euro in 2011 and Lithuania pegged its currency to the euro in 2002 and has said it is considering joining the euro in 2015 or 2016.
    Many mortgages in Latvia are already denominated in euros


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