Riga  - Latvia's central bank sought Thursday to pump liquidity into the nation's banking system and urged the government to balance its budget in 2009.

The announcement by the bank's governor, Ilmars Rimsevics, came as the once-booming Baltic economies slump and credit remains tight worldwide in the fallout from the mortgage crisis in the United States.

The central bank left key interest rates unchanged, but cut the mandatory reserve requirement to 5 per cent of liabilities for maturities of over two years, which is expected to add 190 million lats (376 million dollars) to Latvia's banking system.

Slowing growth pushed the government's budget for 2008 to a deficit of 2 per cent of the gross domestic product.

The Latvian economy is headed for a possible recession after high inflation and tightening of lending led to a drop in domestic demand.

After years of double-digit growth, the Baltic nation's economy expanded by 0.1 per cent in the second quarter of 2008. (dpa)