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Certain stability was also observed on the markets of medium- and long-term credit sources. No considerable increase of interest in the Baltic currencies was observed on the part of Western investors although the developments in the last few weeks might have strengthened to a greater extent the tendency to speculate on the Estonian, Latvian and Lithuanian money markets.
In Latvia the interest rates on overnight deposits plummeted by over 40 percent on February 25-26, as usually happens at the end of the month. This means that most of the commercial banks have met the requirements by the Bank of Latvia and do not need short-term monetary resources.
Note that at the beginning of next week the rates for overnight deposits are most likely to bounce back to their usual level of some 4 percent to 5 percent.
The situation in the Latvian market of medium-term (1-12 months) credit resources remains stable at the moment, but any further developments will depend on the ability of the Latvian government to handle this year's budget.
There are a number of factors that make life difficult for the government, including the considerable fiscal deficit under the budget and the program for privatization of state assets designed to bring more revenues to the budget, a program that can only be implemented with great effort, if it can be implemented at all. Therefore the Finance Ministry might feel compelled to increase the borrowings in the domestic market. In this case the medium-term interest rates are likely to rise.
Estonian interbank market interest rates also fell last week though most of the experts believe that the downward trend has almost ended.
On the other hand, today Estonian banks do not have liquidity problems, therefore the interbank rates cannot be expected to go up.
Alongside purely financial indicators, the coming parliamentary elections on March 7 will certainly influence the Estonian money market.
Last week Experts from Estonian Hansapank pointed out that there were no reasons to expect a further sudden fall of the rates, as investors have pulled out of Estonia a considerable share of the proceeds obtained as a result of the privatization of the Estonian telecommunications company Eesti Telekom. Hansapank's currency dealer Maivi Hanson believes that the privatization proceeds remaining in Estonia in the amount of some 500 million to 600 million kroons ($35.7 million to $42.9 million) will not have any considerable effect on the interest rates as most of this money will be used by the government to cover current costs.
Hanson also pointed out that many companies used the advantage of low rates to issue bonds denominated in kroons.
Last week was relatively uneventful also on the Lithuanian financial market. The interbank rates continued to fall, albeit quite slowly. As a matter of fact, the rise in interest rates at the T-bill auction and for deposits with the central bank leads one to believe that the Lithuanian interbank rates are not going to drop any further.
On the contrary, interest rates on the Lituanian market might again rise considerably towards the middle of the month when compliance with the banking requirements will be checked.