Friday, January 20, 2012

Latvia Central Bank Holds Rate 3.50%, Cuts Reserve Ratio

Latvijas Banka kept its main monetary policy interest rate, the refinancing rate, steady at 3.50%, and held its other interest rates unchanged, but reduced the reserve ratio for bank liabilities above two years to 2% from 3%, and for other liabilities to 4% from 5%.  The Bank said: "By reducing the reserve ratio, additional financial resources are released for lending and more beneficial conditions for the availability of lending resources necessary for economic growth are created. A simultaneous reduction of the reserve requirement for liabilities of different maturities will promote a balanced impact on the availability of financing in the banking sector and will continue to maintain banks' motivation in attracting long-term financing."

Previously the Bank also kept monetary policy settings unchanged, leaving the refinancing rate at 3.50% at its November meeting.  The Bank of Latvia last reduced the refinancing rate by 50bps to 3.50% in March 2010.  Latvia reported annual inflation of 4% in December, down from 4.4% in October, 4.6% in September, and 4.7% in August.  The Latvian economy expanded 5.6% on an annual basis in Q2, while GDP growth was reported as 3.5% in the previous quarter.  The Latvian currency, the lat (LVL), last traded around 0.54 against the US dollar.


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