After becoming the first central bank governor to raise interest rates in the current cycle last month, Governor of the Bank of Israel Stanley Fischer decided today to leave the bank's key interest rate unchanged for October, at 0.75%.
The bank said in its announcement, "The decision to keep the interest rate for October unchanged at 0.75 percent will help return inflation to within the target range and underpin the recovery in real activity, while supporting financial stability."
On the foreign exchange market, the shekel has weakened slightly against the US dollar in the wake of the interest rate decision, from 3.74/$ to 3.755/$.
Analysts had been divided over what would happen to the interest rate this time round. Local analysts on the whole predicted no change, while overseas analysts, such as Credit Suisse, projected a 0.25% rise.
Explaining the interest rate decision, the Bank of Israel said, "Inflation measured over the previous twelve months is slightly above the target range. Inflation from the beginning of the year, however, excluding the effects of increased tax rates and seasonally adjusted, is at the midpoint of the target range. Inflation expectations for the next twelve months, both those of the forecasters and those derived from the capital market, are also at around the midpoint of the target range. The rate of inflation is expected to return to within the target range when the short-term effects of the increases in taxation have run their course. The appreciation of the shekel in terms of the nominal effective exchange rate in the last few months contributed to the moderation of inflation.
"The continued recovery in economic activity and the expectation of faster growth in Israel and world wide suggest that the current environment is one of recovery from the recession. That said, the low rate of GDP growth in the last three quarters has resulted in an output gap that is reflected in a high rate of unemployment, that also serves to dampen inflationary pressures. In addition, there is uncertainty regarding the strength of the recovery in Israel, in part because of the uncertainty about the recovery in the global economy.
"Interest rates of the leading central banks around the world are low, and are expected to remain unchanged during the next few months."
Published by Globes [online], Israel business news - www.globes-online.com - on September 24, 2009
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