Latvia's interbank rates rise

RIGA - Rising interbank credit rates have cooled government securities since August, with the last three-four emissions of internal government bonds finding no takers.

Financial analysts attribute the doubling of interbank loan interest rates in Latvia to currency market forces, political uncertainty and increased icaution since the Russian crisis.

The overnight rate on Aug. 13 was 3.29 percent, twice that on Sept. 13 and 8.57 percent on Oct. 13.

It could be the demand for capital, said Andris Berzins, president of Unibanka.

"When we need more money to reactivate our economy, it is normal," he said. "The political fight in Latvia affects the stability of lats and is responsible for last month's raise in interest."

Valery Kargin, president of Parex Bank, said rates will be undependable until the Baltic states join euroland in 2002 to 2003.

"Banks must survive until then, but then we will have a fluctuation in interbank credit," he said.

Several analysts at a meeting of CEE bankers in Riga said while economic structures want to make money, following the Russian crisis banks have become much more cautious. This caution has caused credit portfolios to decrease and banks to try to make more money in home markets.

The demand for foreign currency increased in August and September, said Kristaps Otersons of Bank of Latvia. The central bank responded by reducing lats in circulation and selling foreign currency to banks.

"The demand for lats persists and has caused the increase of interbank market rates," he said.