Latvia cuts rate 50 bps on low inflation, growth higher

    Latvia's central bank cut is refinancing rate by 50 basis points to 2.0 percent, narrowing the large gap to the European Central Bank's (ECB) 0.50 percent refi rate, saying "inflation indicators are consistently low and the rate of economic growth poses no risks to price stability."
    Latvia will become the 18th nation to adopt the single currency on January 1, 2014.
    The Bank of Latvia, which last cut its rate in September 2012, also said it was lowering its forecast for inflation this year to 0.7 percent, from a previous forecast of 1.0 percent, while it was raising its forecast for economic growth, with Gross Domestic Product forecast to rise to 4.1 percent from a previous forecast of 3.6 percent.
    Latvia's GDP expanded by 1.4 percent in the first quarter from the fourth for annual growth of 3.6 percent, down from 5.1 percent in the fourth quarter.
    The inflation rate rose to 0.2 percent in June from deflation of 0.1 percent in May.
    In addition to cutting its refinancing rate, the Bank of Latvia also cut its marginal lending facility rates  with the size of the cut dependent on the length of time banks are using the facility.
    In its convergence report from June, the ECB said the high level of foreign deposits in Latvian banks posed "an important risk to financial stability." Most of the foreign deposits are believed to be from Russia and amount to about one-third of Latvia's GDP.

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