Latvia denies currency pressure

The Latvian prime minister has denied that the country will need to devalue its currency, the lat, following the failure of a government bond auction.
Valdis Dombrovskis said such a move would unfairly hit savers and increase the cost of the country’s imports.
Instead, the government is now hoping to secure its next tranche of emergency funds from the International Monetary Fund and the European Union.
The Baltic state has been one of the countries worst hit by the recession.
Its economy contracted at an annual pace of 18% in the first three months of the year, and the government said earlier this week that this rate of decline was likely to continue for the remainder of 2009.
Liquidity woes
Latvian bond traders said the gilt auction failed because of a severe lack of liquidity in the country’s money market, a situation exacerbated by the efforts of the Latvian central bank to shore up the lat.
The country was granted a 7.5bn euro ($10.6bn; £6.5bn) IMF and EU bail-out last December, and hopes to secure a further 1.2bn euros from this pot in July. However, to do so, the Latvian parliament first needs to agree on a revised 2009 budget.
Despite the comments of Mr Dombrovskis, many currency analysts say a devaluation of the lat will be inevitable.
„Latvia seems to have reached the point of no return as its peg may not survive for much longer,“ said TD Securities.
News of the bond sale failure has hit the share price of Swedish banks with major investments in Latvia. Swedbank’s shares lost 16% on Wednesday, while SEB declined 11%.
The Latvian economy has seen a sharp fall in consumer spending as unemployment has risen.
Finance