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Latvia money mkt freezing up, o/n rates at 100 pct -

hmm..interesting.. is this the second wave that will hit Europe? Article here (Adds quotes, background) By Carolyn Cohn and Patrick Lannin LONDON/RIGA, June 10 (Reuters) - A wave of interventions by the Latvian central bank to buy the lat currency and hold it within its peg to the euro has caused the local foreign exchange and money market to freeze up and interbank rates have shot up to 100 percent or more, dealers said on Wednesday. "No bank is making any lat offers," said a trader at one Latvian bank. He said all banks wanted to keep hold of lats to meet reserve requirements due to the shortage of the currency, which central bank interventions have sucked out of the market. Reuters data showed banks' reserve requirements at 738.5 million lats, with accrued excess reserves of 30.7 million lats. However, the trader said banks were keeping lats to themselves even with this small excess. There have been no price quotations in overnight and longer-term Latvian money markets on Reuters dealing terminals since Monday, as worries about a possible devaluation of the lat currency hit liquidity. The Rigibor interbank offered rate, fixed daily and based on contributions from seven banks, has been unchanged this week at 16.80/21.60 percent. But this price is not representative of the market. "The Rigibor rate is in no way a reflection of where interest rates would be if banks were forced to give out real interest rates," said Lars Christensen, emerging markets analyst at Danske in Copenhagen. "They would then be at least 50-100 percent. The fact is there is no liquidity." Another dealer said there was a small offshore lat market, where borrowing rates were being quoted at 150-250 percent. One bank, Nordea, is quoting overnight rates at 35/38.5 percent on its Reuters contributor page. Liquidity problems are also hitting the currency. "The only way to get liquidity is from the central bank and it has said it won't give any," the Latvian bank trader added. The euro/lat quotation on the Reuters conversational dealing system is sometimes going hours without updates. "That trade is frozen, almost nothing is going through," said a trader. The lat currency has been hitting four-month highs against the euro this week on hopes that Latvian budget cuts will secure another tranche of funding from an international rescue package and stave off currency devaluation. Iceland suffered a similar seizing up in its currency and money market prices when its financial system and economy collapsed last year. Screen prices for currency markets in Ukraine, which has imposed capital controls on the hryvnia, are unreliable, analysts say. (Reporting by Carolyn Cohn and Sujata Rao in London and Patrick Lannin in Riga; editing by Stephen Nisbet)
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