RIGA - Latvia will not realistically be able to adopt the euro until 2014, according to a recent report released by Fitch ratings agency.
In a July 31 report on Latvia's long term credit rating, Fitch said that the country would have to further delay the introduction of the euro because of high inflation.
"Fitch believes that the inflation figures will not considerably change before 2012 to conform to the Maastricht criteria, which is why the earliest term of ascension to euro zone could be 2013, while 2014 seems to be much more realistic," the report said. Ilmars Rimsevics, head of the Latvian National Bank, has previously said that it is possible the country could change over to the euro by 2012, but that 2013 was a more realistic date. Fitch's assessment shows Latvia will have to wait even longer to adopt the common European currency.
The report said that tax hikes on tobacco and fuel prices would likely cause inflation to increase by another 2.5 percent. Increased energy and public transport fees, meanwhile, could cause the number to go up by as much as another 3 percent.
Fitch predicted that the average inflation rate would hit 16.8 percent at the end of 2008, and then start to fall. The ratings agency forecasted an 11.5 percent inflation rate at the end of 2009, with a one-digit inflation rate of 8 percent by 2010.
The Maastricht criteria, which outline the requirements that a nation must meet to adopt the euro, allow for an inflation rate no higher than 1.5 percent over the 12-month average of the EU's three lowest inflation rates.
In a mid-July report, Fitch preserved Latvia's negative financial outlook concerning Latvian foreign currency liabilities. The agency currently gives Latvia a BBB+ rating for long term liabilities, with a short term rating of F2. The country holds an A- rating for local currencies.
Consumer prices in June this year rose by 0.7 percent as compared to May, while annual inflation declined by 0.2 percent to 17.7. The decrease has been attributed to a smaller increase in the price of foodstuffs 's including fruit, vegetables, dairy products, and tobacco.
Latvia had initially planned to adopt the euro by Jan. 1, 2008, but that proved impossible following high inflation rates and a rejection of the Lithuanian bid for the currency. At the time, Lithuania missed the mark by only 0.1 percent. Both Lithuania and Estonia had initially wanted to adopt the currency on Jan. 1, 2007.