Macroeconomic Forecast Latvia

Latvia's foreign reserve pile has contracted by around 40% since the all-time peak of US$634bn in May 2008 to US$3.9bn in May 2009. With speculation on a devaluation of the lat ( BMI 's core scenario) likely to continue going forward, we expect the Bank of Latvia to continue ploughing its reserves into the foreign exchange market to stabilize the unit. As such, this underscores our projection that the central bank's foreign reserve holdings will reach US$3.0bn by end-2009. An eventual adjustment to the lat's peg and improved global demand conditions will ease pressure on reserves and will allow the central bank to replenish its hard currency pile from 2010.

To read the full article, please choose one of the following options: