#1 Latvian banking system by BalticLegal 22.10.2022 17:51

Since January 1, the Latvian banking system has been part of the Eurosystem, so the principles of the Eurosystem apply.

In order to achieve the price stability objective, the Eurosystem uses a range of monetary policy instruments and procedures. The strategy targets the level of money market interest rates needed to maintain price stability over the medium term, while the operational principles describe the means by which the relevant interest rate levels can be achieved using available monetary policy tools and procedures. The ECB controls short-term money market interest rates through its decisions on key ECB interest rates, which reflect the ECB's monetary policy stance and affect free liquidity in the money market.

Based on the available information on recent economic developments, the ECB needs to assess their impact on future risks to price stability. The monetary policy strategy followed by the ECB when analyzing macroeconomic developments is based on two pillars.

The first pillar includes an analysis of many economic and financial variables with potential implications for price stability in the short or medium term.
The second pillar comprises an analysis of monetary aggregates, which points to the leading role of money in maintaining price stability and focuses on a longer-term perspective.
Both strategic pillars of the Eurosystem aim to ensure a thorough analysis of monetary, economic and financial developments across the euro area. This detailed analysis allows the ECB to set the key ECB interest rates at levels that are best suited to fostering price stability in the euro area as a whole.

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