Thursday, May 16, 2013

Latvia keeps rate steady, warns of lower growth

    Latvia's central bank left its benchmark refinancing rate steady at 2.5 percent along with its reserve requirements, saying there were no risks to price stability but the risks of lower economic growth has risen and economic policy should take this into account.
    The Bank of Latvia also continued to prepare for Latvia's adoption of the euro on Jan. 1, 2014 by keeping its payments system open for business on Dec. 30 to ensure that all payments, including credit card payments, would be settled before the switch to the single currency.
     Latvia's consumer prices fell by 0.4 percent in April, down from inflation of 0.2 percent in March, continuing the declining trend since May 2011 when the inflation rate hit 4.8 percent.
    "Sustained low inflation rates persist in Latvia and the economic growth rate posts no risks to price stability in the medium term" the bank said.

    Latvia's inflation rate is below that of the euro zone's 1.2 percent and its growth rate much stronger, but the central bank warned that in "the last few months, however, the risk of the economic growth in 2013 moderating in comparison with the previous forecasts has increased," adding:
    "Such possibility should be taken into account when planning the economic policy for the near future."
    Latvia's Gross Domestic Product rose by 1.2 percent in the first quarter of 2013 for annual growth of 3.1 percent, down from a rate of 5.1 percent in the fourth quarter.
    In comparison, the euro zone's economy contracted for the sixth quarter in a row, down by 0.2 percent in the first quarter from the fourth quarter, for an annual decline of 1.0 percent.
    The Bank of Latvia has forecast 2013 growth of 3.6 percent, down from 5.6 percent in 2012.
    As part of preparations for joining the single currency next year, Latvia already joined TARGET2, the euro zone's payments system, in 2007. In TARGET2 more than 1,000 European financial institutions perform real-time payment settlements in euro. Since 2008 the Bank of Latvia's electronic clearing system (EKS) has also been able to handle retail payments in euros.


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