Latvia Leaves Benchmark Interest Rate at 2.5% After Two Cuts

Latvia’s central bank, which pegs its currency to the euro, left its benchmark interest rate unchanged after cutting it at the last two meetings.

Latvijas Banka kept the refinancing rate at 2.5 percent, Governor Ilmars Rimsevics told a news conference today in the capital, Riga.

The Baltic nation is rebounding from the world’s deepest recession in 2008-2009, which erased almost a quarter of economic output after a property bubble burst and credit inflows dried up, prompting an International Monetary Fund bailout. The economy grew a preliminary 5.3 percent from a year earlier in the third quarter, the European Union’s quickest pace, while inflation slowed to a two-year low of 1.6 percent in October, below the euro-adoption target rate.

“Inflation risks are still limited and the Bank of Latvia foresees no mid-term risks to price stability,” the central bank said in an e-mailed statement. In addition, “economic growth has been more sustained than previously predicted.”

The yield on Latvia’s dollar bond due 2021 was little changed from yesterday at 3.41 percent as of 2:35 p.m. in Riga. It fell to a low of 3.1911 percent on Oct. 18, data compiled by Bloomberg show.

The refinancing rate affects the minimum interest rate on about 75 million lati ($137 million) a week of central bank swaps and repurchase agreements. The bank runs a quasi-currency-board system, pegged to the euro, where lati in circulation are backed by foreign currency.

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