RTTNews - Moody's Investors Services in a report on Thursday said Latvia is likely to avoid devaluation of its currency in the near term.
The net benefits of a devaluation are highly questionable. Hence, the determined bid of local authorities to maintain the currency peg in spite of the painful adjustment required to do so, Kenneth Orchard, Vice President of Moody's said.
Further, there was also a financial and political commitment from the international community to support the peg through the turbulence, Kenneth pointed out.
Moody's noted that it would be far easier and cheaper for the EU to shore up Latvia than to try to contain a regional financial crisis, as the amounts required by Latvia were relatively small.
At the same time, Moody's pointed out that a potential devaluation could not be ignored as the economic and social pressure in Latvia will continue to remain high for some time. The firm pointed out if a devaluation occurred, it would be consistent with a non-investment grade rating. However, the rating could rise to the 'A' category if the authorities avoid devaluation, stabilize the economy and adopt the euro in a few years time.
Moody's downgraded Latvia by five notches in the last eight months. Currently, Latvia is rated at Baa3 with a negative outlook.
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