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A YEAR WITH THE EURO Vilnius, 21 December 2015 Economic impact of the euro The impact of the euro is evidenced through various channels and at different rates Investment Foreign GDP in the Interest and exchange and medium and rates international settlement costs long terms: trade • Consumption • Investment • Net exports Impact on the price One-off costs of Financial level the euro adoption contributions A YEAR WITH THE EURO Projections about ratings for Lithuania came true Fitch and S&P scale Moody's scale In 2014–2015, the ratings for Lithuania Aa3 were upgraded from the lower (BBB) AA– rating to the higher (investment) rating A+ A1 A A2 Rating agencies: adoption of the euro has mitigated the credit risk of A– A3 the Baltic States: BBB+ Baa1 foreign exchange rate risk has BBB Baa2 decreased BBB– Baa3 – access to financial markets and the –12 –10 –8 –6 –4 –2 0 2 4 6 8 10 12 possibilities of banks' liquidity management have improved Months before (–) and after (+) the adoption of the euro the certainty of economic policy Adoption of the euro Fitch rating and the possibilities for crisis S&P rating Moody's rating management have increased A YEAR WITH THE EURO The credit interest rate burden has eased Interest rates on new loans to enterprises and households in Lithuania* 5 The interest rate amount saved in 4 2015 because of interest rate declines from 2013 3 EUR Of which due to million the adoption of the euro 2 Households 35 20 Enterprises 42 20 1 Total: 77 40 0 12 2012 06 2013 12 2013 06 2014 12 2014 06 2015 Adoption of the euro * 3-month moving average 6-month Euribor Loans to non-financial undertakings Housing loans A YEAR WITH THE EURO The state borrows cheaper Yields of 10-year GS in national currency 5 While GS yields rose somewhat in 2015, as a result of the strengthening of 4 Europe's economic growth and inflation expectations... 3 ... the Lithuanian Government 2 borrows at a lower cost due to the adoption of the euro and higher grades. 1 The interest payable by the RL 0 Government on GS issued in 2015 will 12 2012 06 2013 12 2013 06 2014 12 2014 06 2015 12 2015 be ~EUR 70 million lower over the entire period of their maturity. Lithuania Latvia Poland Germany A YEAR WITH THE EURO The Eurosystem's easing programme favourably affects the Lithuanian economy The influence of the Eurosystem's quantitative easing programme The programme accelerates euro area economic growth and thus the demand for the exports of Lithuanian enterprises Depreciation of the euro encourages Lithuanian exports to third countries The impact on the domestic economy through the interest rates will be positive but less pronounced due to the previously low interest rates The Bank of Lithuania, jointly with the ECB, has purchased Republic of Lithuania GS in the amount of EUR 1 billion The programme is likely to boost growth of Lithuania's GDP by 0.2 p.p. (EUR 74 million) in 2015 and by 0.1 p.p. (EUR 39-41 million) in 2016 and 2017 A YEAR WITH THE EURO Expenses of residents and businesses on currency exchange decreased Adoption of the euro entailed the disappearance of: litas and euro exchange expenses (70% of total currency exchange) expenses of hedging against the litas and euro exchange rate fluctuations The saving is estimated at about 0.14% of GDP The income of banks operating in Lithuania from services and commissions dropped by EUR 10.6 million over the nine months of 2015 A YEAR WITH THE EURO Bank customers saved due to reduced fees for cross-border payments in euro From 1 January, the fees for cross-border transfers in euro dropped to the level of domestic transfers Lithuanian residents and businesses saved Average operation fee (in EUR) about EUR 9.9 1.63 18.5 0.38 0.33 Electronic transfers Administration of million over the year transfers received 2014 2015 A YEAR WITH THE EURO SEPA — uniform electronic payments in euro 'One window' — one account in any SEPA country is enough for residents and businesses to execute and receive payments Higher competition among banks and other service providers Standardised and upgraded interfaces among payment service providers and businesses New services — the possibility to receive and settle electronic accounts within the electronic banking system Uniform payment instructions for cross-border and domestic transfers A YEAR WITH THE EURO Adoption of the euro and financial contributions Lithuania's FM contribution — EUR 327.2 million in equal instalments (EUR 65.4) over 5 years (2015–2019); Maximum liabilities, if necessary — EUR 2.5 billion. Return: • Support guarantee; • The European Investment in a financial intermediary's capital; • Economic stability of the euro area; Stability • A proportionate share of income when the ESM reaches Mechanism its full lending capacity and no financial aid is granted to any ESM Member State (if granted — profit can be allocated upon decision of ESM management) The BoL's additional contribution to the ECB capital — EUR 43.1 million (the BoL has paid a total of EUR 44.7 million). Return: European • for banks in the country — direct access to the Eurosystem's liquidity; Central Bank • for the Bank of Lithuania — a share of the Eurosystem's profits, proportionate to its contribution A YEAR WITH THE EURO Deflation recorded in Lithuania Contributions to annual HICP inflation Percentage points Percentage 3 3 Projection: 1.4% 2 2 1 1 0 0 –1 –1 –2 –2 –3 –3 2014 Adoption of the euro 2016 (P) Prices of industrial goods Prices of services Prices of fuels and lubricants Prices of food, beverages and tobacco Administered prices Annual core inflation (right-hand scale Annual inflation (right-hand scale) Sources: Statistics Lithuania and Bank of Lithuania calculations. Note: Projection of 2016 is the average annual rate. A YEAR *HICP change, excluding the prices of food, fuels and lubricants, and administered prices. WITH THE EURO Impact of the euro on prices Eurostat evaluation: effect of the adoption of the euro on inflation in the Baltic States Impact on prices In Estonia In Latvia In Lithuania 2011 2014 2015 0.20–0.30 0.12–0.21 0.04–0.11 Inflation in the Baltic States before and after the adoption of the euro Percentage 6 5 4 3 2 1 0 –1 –2 Year until the adoption of the euro Adoption of the euro Year after the adoption of the euro A YEAR Lithuania Latvia Estonia Source: WITH THE EURO Developments in basic goods and services In September 2015, over the year, out of 100 key consumer goods and services monitored: prices of prices of the price of goods and goods and the product services have services have have remained 50 dropped 49 increased 1 unchanged Percentage, annual change Percentage, annual change 0 -10 -20 -30 -40 -50 0 10 20 30 40 50 Liquefied car gas -28.3 Apples 38.5 Diesel -19.4 Cabbage 36.6 Curd, 9% fat -16.3 Onions 32.4 Petrol A–95 -14.2 Beets 21.5 Pasteurised milk, 2.5% fat -11.7 Potatoes 20.1 Butter, 82% fat -11.4 Buckwheat 13.7 Beer, 5–5.2% alc., bottled -9.8 Toothpaste 11.5 Sour cream, 82% fat -9.4 Oranges 10.6 Broiler chicken -8.1 Men's suit dry cleaning 9.5 Hot dog sausages, highest quality -7.3 Cinema, evening ticket 8.9 White sugar -7.3 Men's haircut 8.8 Minced pork -7.0 Sunflower oil 7.8 Glazed curd snack, 21–24% fat -6.9 Black coffee at a café 7.3 Light bread, 700–800 g -6 1 . Lunch menu at a restaurant or a café 7.3 Gouda cheese, 30–48% fat -5 5 . Frozen sea pike fillet 7.2 Source: Statistics Lithuania and Bank of Lithuania calculations. Source: Statistics Lithuania and Bank of Lithuania calculations. A YEAR WITH THE EURO Increased wages have an impact on the growth of services' prices Wages and prices in the services sector Percentage, annual change Percentage, annual change 30 18 20 12 10 6 0 0 -10 -6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Prices of services, excl. telephony (right-hand scale) Average wages in the services sector Sources: Statistics Lithuania and Bank of Lithuania calculations. A YEAR WITH THE EURO Wages are growing rapidly Wages Percentage, annual change 8 Annual wage growth 7 (%, Q3 2015) 10.9 6 Projection – Accommodation and catering 5 per cent Leisure and entertainment 9.3 5 Information and communication 8.2 4 Administrative and support service activities 8.1 Other activities (e.g. hairdresser's, beauty salons) 8.0 3 Manufacturing 7.9 2 Finance and insurance 7 .9 1 Professional services 7.6 Mining and quarrying 6 . 8 0 2014 2015 . 2016 (P) Transport 6.5 Trade 6.4 Sources: Statistics Lithuania and Bank of Lithuania calculations. A YEAR WITH THE EURO Less cash currency in circulation EUR million 3000 2500 2000 1500 1000 500 0 01 02 03 04 05 06 07 08 09 10 11 2015 Euro Litas (converted into euro) Total A YEAR WITH THE EURO Number of euro banknotes issued into circulation by the Bank of Lithuania Million pcs 29 27 EUR 50 25 23 21 19 17 15 EUR 20 13 EUR 10 11 9 7 EUR 5 5 3 EUR 100 1 EUR 200 -1 EUR 500 01 02 03 04 05 06 07 08 09 10 11 2015 A YEAR EUR 5 EUR 10 EUR 20 EUR 50 EUR 100 EUR 200 EUR 500 WITH THE EURO Structure of the number of euro banknotes issued into circulation by the Bank of Lithuania by denomination (percentage) 30 November 2015 EUR 100 EUR 200 3% 1% EUR 500 EUR 50 0% 48% EUR 5 9% EUR 20 EUR 10 A YEAR 24% 15% WITH THE EURO Number of euro coins issued into circulation by the Bank of Lithuania Million pcs 45 41 37 EUR 0.01 33 29 EUR 0.02 25 21 EUR 0.10 17 EUR 0.05 EUR0.20 EUR 2 13 EUR 1 9 EUR 0.50 5 1 01 02 03 04 05 06 07 08 09 10 11 2015 m.

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