mr repse gives a short speech on monetary policy in latvia and exchange rate strategies speech given by mr einars repse, governor of the bank of latvia, at the ecb seminar on the accession process, held in helsinki on 11 november 1999. * * * ladies and gentlemen, accession to the european union ( eu ) is a strategic aim of latvia, and we see joining the european monetary union ( emu ) as an integral part of this process. we strongly hope that the european council will accept the commission ’ s recommendations and a decision will be made to commence accession negotiations with latvia in year 2000. the bank of latvia will be well prepared for these negotiations, as we have already established our status and policies with a perspective of future membership in the eu. the bank of latvia enjoys a high degree of independence, fully compatible with the requirements of the emu. price stability is clearly defined as the main objective of the bank of latvia, and its monetary policy instruments and procedures largely correspond to the monetary policy framework used within the european system of central banks. and we are implementing a very conservative monetary policy, which, as we believe, is in line with the policy principles of the european central bank ( ecb ). since 1993, latvia has been using the exchange rate based stabilisation programme. in february 1994, the bank of latvia pegged the national currency to the sdr basket. we based our decision on the belief that a fixed exchange rate regime, if it is durable and credible, reduces uncertainty, eliminates currency risk and provides businesses with a sound basis for planning and pricing. it fosters investment and international trade, which are of a particular importance for the restructuring of a small, open economy like latvia. the bank of latvia has indeed ensured that the exchange rate arrangement is credible and durable, and the latvian economy has benefited from the stability. inflation has declined to a level consistently below 3 %, there has been considerable growth in exports, especially to the eu countries, and it has contributed to the strong gdp growth over the last years. the achieved macroeconomic stability allows us to set the target of fulfilling the nominal convergence criteria at the time of latvia ’ s accession to the eu. pegging the national currency to the sdr rather than to a single currency, the bank of latvia has made the lats fluctuate less against any individual currency than it would otherwise. furthermore, the structure of latvian foreign trade by settlement currencies largely corresponds to the composition of the sd

non - performing loans in total shrank to 2. 2 % at end - september. in september, loans to domestic enterprises and private persons rose 4. 3 %, reaching 1 664. 2 million lats. this was the most rapid monthly increase in loans this year ( annual growth was 43. 0 % ). loans to enterprises grew in excess of loans to private persons ( increases of 49. 7 million lats and 19. 5 million lats, respectively ). an increase of 73. 3 million lats was recorded in long - term loans, whereas short - term loans declined slightly. the increase of 19. 4 million lats in mortgage loans was the largest increase in loans. this can be attributed to the fact that the real estate market deepens and people increasingly start construction of housing and repairs of dwelling they own. commercial and industrial credit, which are related with the development of the trade and industrial sectors, increased considerably ( by 18. 9 million lats and 9. 6 million lats, respectively ). the most rapid annual increase was recorded in mortgage loans ( 95. 2 % ). at the end of september, loans granted by banks totalled 1 909. 7 million lats ( a month - on - month increase of 3. 7 % ). in september, total deposits decreased by 2. 8 % ( to 2 702. 1 million lats ), but deposits received from domestic enterprises and private persons ( 1 234. 6 million lats ) rose 0. 5 % over august and 23. 0 % over september 2001. in september, banks'assets ( excluding trust assets ) grew by 0. 6 % ( a year - on - year increase of 26. 4 % ), reaching 3 963. 4 million lats. banks'equity increased by 1. 8 % in september, totalling 365. 9 million lats at the end of september ( a year - on - year increase of 37. 8 % ). banks'profit for the first nine months of 2002 was 39. 3 million lats ( a year - on - year increase of 35. 8 % ). the most significant event in the latvian securities market was the new issue of 10 - year mortgage bonds by the state joint - stock company latvijas hipoteku un zemes banka. these securities have the longest maturity of all latvian securities. mortgage bonds were successfully auctioned on the riga stock exchange and all bonds supplied ( 3 million lats