Bank of Latvia: devaluation of lat is 'impossible'

  • 2007-09-19
  • Staff and wire reports
RIGA - Central bank chief Ilmars Rimsevics has once again strongly refuted speculation that Latvia's national currency could be devalued despite the glaring macroeconomic imbalances such as high inflation and the largest current account deficit in the EU.

"Nothing has changed in the Bank of Latvia's position," he told reporters Sept. 13. "The Bank of Latvia has never weighed such a possibility [devaluation] and is not considering it now."
Rimsevics, who chafes at the mere mentioning of devaluing the lat, went so far as to say that a devaluation was impossible. "All this speculation that has been and will be circulating is nonsense, and a devaluation of the lat is impossible," he said, adding that devaluation rumors have made no impact and they only "annoy people and make them nervous without any reason."
Rimsevics explained the bank's reserves are sizable enough to support the lat, and they have been expanded by some 150 million euros.

Latvia has come under criticism in the international and local investment communities for a number of imbalances in its economy triggered by rapid economic development. All the major credit agencies have lowered the country's sovereign rating or outlook in recent months.
August annual inflation was 10.1 percent, while the country's current account deficit still remains perilously high.
Rimsevics said, however, that the government's anti-inflation plan adopted in March was beginning to work. He did, however, admit that inflation would likely remain at the current level due to, among other factors, a new heating tariff set for October. Inflation, he said, would begin declining next spring.
He declined to predict figures for the year.

In August, the average prices of goods remained flat from July, while prices for services rose 1.3 percent. Compared to August 2006, prices of goods jumped 8.7 percent and prices for services soared 13.9 percent.
The Statistics Office reported that compared to July, consumer prices in Latvia grew at a faster pace in August mainly due to steeper price hikes for tobacco, catering services, meat products and thermal power.
Meanwhile, wages continue to skyrocket, jumping 31.6 percent in the second quarter, the Statistics Office announced Sept. 14.
Public sector wages jumped 34.5 percent to 4.01 lats (5.72 euros) per hour in the April to June period, the office said.

On Sept. 17 Prime Minister Aigars Kalvitis suggested that the government might consider freezing public sector wages for up to five years. "When inflation reaches 10 percent, we need to talk not about how to increase wages but how to freeze them," he told Latvian Radio in an interview.