They must find ways to put the federal budget on a sustainable path, but not so abruptly as to endanger the economic recovery in the near term. In particular, the Congress and the Administration will soon have to address the so-called fiscal cliff, a combination of sharply higher taxes and reduced spending that is set to happen at the beginning of the year.
However, as the market for government and corporate securities develops over time, it is expected that traditional repo operations will progressively become more important. By regulating liquidity in the banking sector through open market operations, the Bank of Latvia can influence interest rates in the interbank market.