Even though economic growth will be much faster than expected in the beginning of the year, uncertainty and risks remain high, which are mainly due to the unstable situation in the countries affected by the European debt crisis, Bank of Latvia reports.

A stronger foreign demand than initially expected along with strengthened competitiveness allowed Latvia’s national economy participants to preserve a positive expectation of the future and achieve faster economic growth in the beginning of 2012. This is why Latvia’s GDP growth projection for 2012 was increased from 1.3% to 3.5-4.0%, which will be assessed as relatively good on the background of other European countries.

Nevertheless, it is worth remembering that the European debt crisis is not over, and this projection should include the possibility that the expected foreign demand increase can very much turn to the other side, Bank of Latvia reports.

Also, keeping in mind that medium term risks for price stability are limited and that inflation continues to drop, as well as the projected negative affect the European debt crisis will have on Latvia’s national economy, the Bank of Latvia has decided to lower all interest rates of the Bank of Latvia. Interest rate of the bank’s refinancing is decided to reduce from 3.5% to 3.0%, the bank’s overnight deposit opportunity interest rate from 0.25% to 0.1%, and the bank’s seven days deposit opportunity from 0.375% to 0.125%. Other interest rates are also decided to be decreased.

The softening of the monetary policy, which was carried out after the reduction of separate rates in March will give additional motivation for the bank to divert loose resources to the development of the national economy. The bank’s new loan opportunity interest rates will be used starting from July 24, 2012. The bank’s compulsory reserve ratio is not changed.

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