OREANDA-NEWS. May 16, 2011. Taking into account the gradual recovery of the economy and the fact that the current inflation risk factors are not related to a rise in demand and risks to price stability in the medium term are limited, the Bank of Latvia Council today resolved to leave unchanged the interest rates and the mandatory reserve requirement for the banking sector set by the Bank of Latvia, reported the press-centre of Bank of Latvia.

The latest Latvian economic indicators confirm that a gradual and slow economic recovery is currently taking place.

The rise in inflation at the beginning of the year is determined by supply side factors, i.e. the rise in global oil and food prices; and administrative decisions, i.e. the raising of taxes. Demand side is still acting as an inflation limiting factor: the development of wages and consumption is quite moderate; unemployment is dropping slightly yet it remains high, and bank lending is still contracting. Thus risks to price stability in the medium term are not significant and, as the prices of energy resources and food stop climbing in the foreign markets, inflation can be predicted to abating and stabilizing at a lower level – on the condition that taxes will not be subject to further raises.