Reserve requirements imply that credit institutions must hold a certain ratio of the attracted deposits and debt securities issued with the Bank of Latvia.

In the event the reserve requirements are increased, credit institutions will have to hold more funds with the central bank. It means that the amount of funds attracted by credit institutions, which is at their disposal and could be freely placed in the economy, thus increasing the level of credit and broad money, will decrease. Reserve requirements as a monetary policy instrument ensure a higher stability in the monetary base demand and facilitate effectiveness of market operations, preventing excessive interbank interest rate daily fluctuations.