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Thursday, 25.04.2024, 20:01
Moderate dynamics of monetary aggregates suggests economic stability in Latvia
While certain signs of heating
up have indeed surfaced on the supply side, the demand-side factors do not yet
suggest such developments, which is also confirmed by the dynamics of the monetary aggregates.
Even though new loans increased in August, the size of
the loan portfolio has remained practically unchanged and its annual
rate of change has also been standing close to zero for quite some time now,
with loans to non-financial corporations and households growing by 0.4% and
–1.0% respectively. Therefore, loans should not be viewed as a factor
significantly affecting the amount of currency in circulation.
While deposits with banks did rise slightly faster due to the
inflows of investment and the financing of the European Union funds as well as
due to an expansion of exports, the increase was only 2.7% year-on-year in
August.
With loans to non-financial corporations shrinking somewhat (by 0.2%) and
loans to households increasing (by 0.1%), total domestic
loans remained broadly unchanged in August. The annual rate of change
in domestic loans was 0.8% in August. New loans (excluding
renegotiated loans) expanded by 17.0% month-on-month and by 28.5% year-on-year.
Meanwhile, in the first eight months of 2017 overall the growth rate was 2.4%
lower than in the corresponding period of the previous year.
Domestic deposits with banks
grew by 1.1% in August. Inter alia, deposits of non-financial corporations
increased by 2.1% and those of households shrank by 0.4% posting an annual
growth rate of 8.5% and 6.8% respectively.
The rise in
deposits also facilitated a 1.8% increase (annual growth rate –
2.8%) in Latvia's contribution to changes in the monetary
aggregate M3 of the euro area. Overnight deposits of euro area residents with
Latvian credit institutions, deposits with an agreed maturity of up to
2 years and those redeemable at notice expanded by 1.7%, 3.3% and 4.4%
respectively.
Annual change of
selected monetary aggregates (%)
Source: Latvijas Banka
No significant
changes in deposit dynamics are expected at the end of 2017 and in 2018.
Overall, neither the positive consumer sentiment nor the investment activity of
businesses facilitate excessively rapid build-up of savings in bank accounts.
Changes in lending will be moderately positive suggesting a considerably
different situation from that in the pre-crisis period from 2006 to 2008 when
signs of overheating were observed.