Latvian economy likely to slow at year's end

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It is likely that the Latvian economy will slow down around the turn of the year, according to Bank of Latvia governor, Mārtiņš Kazāks, on LTV's "Morning Panorama" news show July 26. 

The head of the Latvian central bank explained that currently Latvia's economy is still growing, but economically speaking the autumn will be a difficult one: "Higher prices will force households to spend less, targeted support is necessary. It is very likely that the economy will slow down around the turn of the year, but there is no reason to talk about a deep crisis at the moment," Kazāks said.

Targeted government support will be required, as high prices in autumn will force households to spend less and exporting companies will feel the effects of the world economy growing more slowly, he said. 

On the other hand, in connection with the fact that the European Central Bank raised the base interest rate in order to reduce inflation, Kazāks believes that "this will be neither the first nor the last step with interest rates".

The president of the Bank of Latvia explained: "This is done with the aim of making the pain of inflation shorter, so that it does not take root. When the effects of the war gradually disappear, oil prices will no longer rise, then there will be no spiral of inflation that will continue to drive it forward."

In general, Kazāks assessed that inflation remains high and risks are increasing, thus interest rates are likely to continue rising.

"The [interest rates] that people, companies use on a daily basis have already risen much faster than the rise we announced last week, because the financial markets are reacting faster," added Kazāks. 

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