loans

The October data still pointed to continued stability in the Latvian financial system in the area of amount of money in circulation. Even though money indicator M3, which characterizes the amount of cash and non-cash currency in the economy dropped by 1.9% in October of 2010, the M3 annual growth, at 11.0%, was substantial.

The gradual recovery of the Latvian economy has determined a further rise in the money in circulation. Just as in previous months, in September 2010 the money indicator M3, which characterizes the volume of cash and non-cash currency in circulation has grown (by 1.3%), but the annual rise in M3 has reached 12.8%.

For quite a long time and good reason, money has been looked upon as the blood circulation system of the global economy; with respect to such interpretation, Latvia is not an exception. With money servicing a vast range of economic transactions, its volume indicators and the dynamics of changes and components describe the economic development processes in quite a detailed way both in the peaks and troughs of the economic cycle.

The global financial crisis with its adverse effects on real economic growth has occupied an almost permanent place in media coverage for a couple of years now. The crisis has affected lending and interest rates in Latvia as well. New borrowers have to reckon with substantially higher mark-ups above the money market interest rates than before. As to the loans in lats, the variable component of interest rates has become more unstable and less predictable. However, not all trends of the interest rate dynamics should be marked with a negative sign.

As the fragile trends of economic recovery take root, the amount of money in circulation continues to grow. As in July, in August 2010 money indicator M3, which reflects the amount of cash and non-cash currency in the economy, grew again (by 1.3%), while the annual increase in M3 reached 10.6%.

The end of the recession period in Latvia, along with several indicators in the real sector, is also marked by an increase in the amount of money in circulation. After a small decline in the previous two months, the money indicator M3, which characterizes the amount of cash and non-cash currency in the economy, has increased again in July (by 0.4%), whereas the M3 annual increase has already reached 8.0%.

The strengthening of economic activity in Latvia has stabilised the amount of currency in circulation. In June 2010, monetary aggregate M3 which reflects the amount of cash and non-cash instruments in the economy, decreased somewhat whereas the annual growth rate of M3 continued on its upward trend, reaching 5.5%.

In the conditions of a low domestic demand persisting on the one hand and confidence level improving and production volumes in the exporting sectors growing on the other, the developing situation in the Latvian economy has also stabilized money in circulation. In May 2010 the M3 money indicator that characterizes the volumes of both cash currency and non-cash currency in the economy remained almost unchanged whereas the rate of M3 annual growth continued to increase reaching 4.9%.

The Latvian economy demonstrating increasingly more signs of recovery and overcoming its period of recession, in April 2010 a further rise in the amount of money in circulation was observed. The money indicator M3, which characterizes the total amount of cash and non-cash currency in the economy, grew 1.8% within a month, but the annual increase of M3 reached 4.2%.

An increased activity in the economy and growing trust in it for close to six months now has been evidenced by the dynamics of money supply.  In four of the last five months (a small seasonal decrease in January excepting) a steady rise in money in circulation was observed.