Bloomberg News

Latvia Central Bank Holds Main Rate at 3.5% for 13th Meeting

May 25, 2012

Latvia’s central bank left borrowing costs unchanged for a 13th meeting as inflation risks eased after parliament lowered the sales tax by one percentage point.

Latvijas Banka kept the benchmark refinancing rate at 3.5 percent, Governor Ilmars Rimsevics told a news conference today in the capital, Riga.

“In view of the relatively rapid economic growth observed in the last quarters and the gradual improvement in lending, against the background of moderate medium-term risks to price stability, the Council of the Bank of Latvia has assessed the current monetary policy conditions as consistent with the economic situation,” the bank said in an e-mailed statement.

The economy, which expanded a preliminary 6.8 percent from a year earlier in the first quarter, may grow about 3.5 percent this year as the euro area’s debt crisis weighs on exports, according to the International Monetary Fund. Inflation slowed to 2.8 percent from a year earlier last month compared with 3.3 percent in March.

Latvia completed a 7.5 billion-euro ($9.4 billion) bailout from a group led by the European Union and the IMF in December. The country, which fixes its currency to the euro, plans to adopt Europe’s common currency in 2014 and must meet criteria on inflation, interest rates, budget deficit and government debt.

The refinancing rate affects the minimum interest rate on central bank swaps and repurchase agreements, worth about 75 million lati ($135 million) a week. The bank runs a quasi- currency-board system, pegged to the euro, where lati in circulation are backed by foreign currency.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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