Baltic countries enjoy greater confidence

Necessary budget corrections in the three Baltic countries are under way and previously high interbank rates have come down significantly. SEB’s main scenario is that all three countries can maintain their current currency pegs.

In a new report, Mikael Johansson, head of Baltic research at SEB, says that challenges however remain substantial, particularly for Latvia and Lithuania. Both countries still have large budget deficits to cope with and in Latvia upcoming elections next autumn reinforce uncertainty further.

 “There is lingering general uncertainty as to whether the governments have the stamina to continue their belt-tightening to the end, including continued pay cuts. This means that exchange rate risks persist, especially in Latvia,” Johansson says in the report.

He adds that lower interbank rates however show that market participants believe in the governments after the respective parliaments have passed the budget proposals.