Monday, March 03, 2008

Devaluation fears? What devaluation fears?

For last 3 weeks, Bank of Latvia has intervened into the currency market to maintain the currency peg of 1 euro=0.7028 lat (+/- 1%). They've bought a total of 24 million euros in 3 weeks, to prevent the lat from rising against euro.

Economists are still discussing whether the imbalances in Latvian economy could lead to a devaluation of the lat in the future. But, despite those discussions, it's now the euros that are being changed into lats, rather than the other way around. And, in the streets of Riga, currency exchanges are selling euro banknotes for 69.8-69.9 santims, about half percent below the Bank of Latvia official rate.

Two months ago, I wrote that people are starting to disregard devaluation rumours as background noise. It's even more true now.

2 comments:

hk said...

how big is $24M over 3 weeks in terms of past interventions? I'm guessing, but maybe a fund decided to take off Eur/lat trade, for stratigic reasons or perhaps to allocate money to more pressing needs.

Story about Swedish banks touches on Hansapank Latvia subsidiary. Rediculus comment on Iceland buying in, considering the contries financial system is undergoing a mini crises
http://www.ft.com/cms/s/0/41d0c82c-e98b-11dc-8365-0000779fd2ac.html

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