Presentation of Ilmārs Rimšēvičs, Governor of Latvijas Banka, delivered at 6 June 2014 Press Conference. Speech transcript available at www.bank.lv.

1. Presentation of Ilmārs Rimšēvičs, Governor of Latvijas Banka,
delivered at 6 June 2014 Press Conference.

2. Growth resumes in the 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 persists in 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 of the 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 have improved 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 in the indebtedness of some
euro area countries is worrisome
Avots: Eurostat
Limit of stability
and growth pact
= 60%
6

7. The ECB’s policy of 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 June 2014 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, the Governing 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 GDP growth 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,
yet export 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 of Latvia’s GDP forecast
for 2014
12Source: LB
Previous
forecast
Current
forecast*
4.0% 3.3%
* adjusted in mid- 2014

13. Inflation level reflects moderate 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 of Latvia’s inflation
forecast for 2014
14Source: LB
Previous
forecast
Current
forecast*
1.7% 1.1%
* SPCI; forecast adjusted in mid-2014.

15. LB and FM budget 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 has been 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)