Latvijas Banka 6 June 2014 Press Conference - Presentation Slides

Latvijas Banka 6 June 2014 Press Conference - Presentation Slides

• 1.
  Presentation of IlmārsRimšēvičs, Governor of Latvijas Banka, delivered at 6 June 2014 Press Conference.
• 2.
  Growth resumes inthe euro area, but recovery is still fragile 2 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 Quarterly growth (%) Annual growth (%) Changes in euro area real GDP, % Source Eurostat
• 3.
  Low inflation persistsin the euro area 3 0 0.5 1 1.5 2 2.5 3 3.5 2010Jan 2010Mar 2010May 2010Jul 2010Sep 2010Nov 2011Jan 2011Mar 2011May 2011Jul 2011Sep 2011Nov 2012Jan 2012Mar 2012May 2012Jul 2012Sep 2012Nov 2013Jan 2013Mar 2013May 2013Jul 2013Sep 2013Nov 2014Jan 2014Mar 2014May Euro area inflation (HICP), % Source: Eurostat
• 4.
  Problem countries ofthe euro area can borrow at ever lower rates 4Source: Eurostat 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2011M01 2011M04 2011M07 2011M10 2012M01 2012M04 2012M07 2012M10 2013M01 2013M04 2013M07 2013M10 2014M01 2014M04 6.20 Greece 3.82 Portugal 3.23 Italy 3.11 Spain 2.90 Ireland 1.46 Germany
• 5.
  Budget balances haveimproved markedly since the crisis (debt servicing not included) 5 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 Ireland Portugal Cyprus France Malta Slovenia Spain Belgium Slovakia TheNetherlands Austria Latvia Italy Finland Estonia Germany Luxembourg Greece 2010 2013 Strukturālā budžeta bilance. Avots: EK
• 6.
  38.1 0 20 40 60 80 100 120 140 160 Greece Italy Belgium Portugal Germany France Malta Austria Cyprus TheNetherlands Spain Finland Slovakia Ireland Slovenia Latvia Luxembourg Estonia 2007 2013 Growth inthe indebtedness of some euro area countries is worrisome Avots: Eurostat Limit of stability and growth pact = 60% 6
• 7.
  The ECB’s policyof low interest rates has not been passed through to the real economy 7 3.13 0 1 2 3 4 5 6 7 Cyprus Greece Malta Portugal Slovenia Italy Slovakia Spain Germany Latvia Ireland The… Belgium Estonia France Austria Luxemb… Somija Interest rates of loans granted by banks to non-financial businesses in the euro area countries in March 2014 (%) Source: ECB ECB benchmark rate 0.25%
• 8.
  At the June2014 meeting the Governing Council further reduced the key ECB interest rates 0.00% -0.10% * šādā līmenī kopš VII 2012 Deposit facility rate 0.25% 0.15% Main refinancing operations rate 0.75% 0.40%Marginal lending facility rate * šādā līmenī kopš XI 2013 * šādā līmenī kopš XI 2013
• 9.
  In addition, theGoverning Council adopted a number of other measures o New targeted longer term refinancing operations(TLTRO): - to support bank lending to households and non-financial corporations - attractive interest rates - some 400 billion euro - as of September 2014 o Continue conducting the MROs as fixed rate tender procedures with full allotment at least until December 2016. o Suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme. o Intensify preparatory work related to outright purchases in the asset based securities (ABS) market, should it become necessary in the future. o GovC is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary o Changed forward guidance– the key ECB interest rates will remain at present levels for an extended period of time. 9
• 10.
  With the GDPgrowth rate falling, Latvia is still the fastest growing economy in the euro area 10 2.4 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Latvia Germany Slovakia Belgium Portugal Austria France Spain Italy TheNetherlands Finland Greece Estonia Cyprus GDP growth in the first quarter of 2014, %, seasonally adjusted data; source: Eurostat
• 11.
  Exports grow overall, yetexport to Russia falls -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 Y-o-Y changes in Latvian goods exports (%) Total exports (%) Exports to Russia (%) -1.8% +6.1% 11 Proportion of goods exports to Russia in total Latvian exports 11.5% 2013.data Source: CSB
• 12.
  The Bank ofLatvia’s GDP forecast for 2014 12Source: LB Previous forecast Current forecast* 4.0% 3.3% * adjusted in mid- 2014
• 13.
  Inflation level reflectsmoderate growth; the negative contribution of supply side factors diminishing 13 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 I2012 II III IV V VI VII VIII IX X XI XII I2013 II III IV V VI VII VIII IX X XI XII I2014 II III IV Contribution of food prices in y-y changes in inflation Contribution of energy prices in y-y changes in inflation Total inflation (%) Core inflation (%) Source: CSB, LB calculation Contribution of energy and food prices in the annual inflation(pp), core inflation (%) national consumer price index
• 14.
  The Bank ofLatvia’s inflation forecast for 2014 14Source: LB Previous forecast Current forecast* 1.7% 1.1% * SPCI; forecast adjusted in mid-2014.
• 15.
  LB and FMbudget deficit forecasts for 2014 (% of GDP) 15 -1.0 -1.0 -0.3 -0.2 -1.6 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0.0 %noIKP -1.5% Source: Latvia’s Stability Programme 2014-2017; LB estimates Budget deficit planned by Ministry of Finance Current budget deficit forecast by LB FM planned budget deficit Budget deterioration because of lower economic growth and increased expenditure Budget deterioration as a result of EKS adjustment
• 16.
  Budget deficit hasbeen shrinking every year since the crisis. We must not repeat the mistakes of the boom years! 16 -4.4 -9.2 -8.2 -3.5 -1.3 -1 -1.5 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 2008 2009 2010 2011 2012 2013 2014 %noIKP Source: Eurostat; 2014 LB estimates Balance of general government budget (Prognoze)