Latvia Central Bank Statement

Author: | Published: 5 Sep 2017
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The year 2016 was a rather eventful period for the global economy, and the leading central banks continued to pursue an active monetary policy. In the euro area as well, balance was sought between the goals of sustainable development and solutions to topical problems by injecting additional financing into the economy.

Latvia's joining the euro area three years ago coincided with the time when the implementation of non-standard monetary policy measures began. That was a challenge not only to Latvia and Lithuania (the latter joined the euro area in 2015), the new members of the 'euro club', but also to the old member states of the euro area.

Implementing the Public Sector Purchase Programme (PSPP) in 2015 and 2016, Latvijas Banka purchased securities from the Latvian government and euro area international organisations for a total of €4.4 billion; €1.1 billion of this went to the system of Latvian credit institutions. Although the monetary policy transmission mechanism is yet to function flawlessly and credit institutions are reluctant to grant loans, a part of this money entered the real economy and promoted lending growth.

The active monetary policy of the Eurosystem and global trends in oil and food prices support bringing euro area inflation closer to the target level. Faster economic growth is also observed; however, both the euro area at large and Latvia in particular will have to face crucial challenges related to modernising the economy and establishing sustainable growth foundations.

There comes a moment in the development of any country when the hardships related to state-building have been overcome and it is time to assess the accomplishments to take important steps toward further development. It is never easy, for overcoming barriers always involves additional effort, perfecting the existing and acquiring new skills.

Latvia currently finds itself in just such a situation and, in the course of 2016, the terms 'reforms', 'structural changes' and 'competitiveness' became standard in the vocabulary of practically every politician, decision maker, economist, businessman and many ordinary people.

The fact that without reforms faster economic growth and higher living standards are not possible is understood not only in Latvia but also in the entire euro area. Global economic developments make us stay alert and do not let us forget the need to foster competitiveness and reinforce our future potential. Latvia's goal is a faster achievement of the average EU living standards, without falling into a middle-income trap.

What is to be done to achieve faster and more sustainable growth? In 2016, Latvijas Banka helped the government find the answer to this question. It involves fostering the interest of investors and improving the potential of the working force by implementing vital reforms in education, healthcare and the business environment. Recently, Latvijas Banka also drafted its Tax Strategy 20/20, which contains proposals for introducing a competitive and growth-promoting tax system. We are pleased to have won the government's ear, and significant improvements in several areas are being planned. Latvijas Banka is ready to provide both practical and analytical support also in the future.




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