Bank of Israel holds interest rate at 1¼% as slowdown concerns ease

By Toni Weeks

San Luis Obispo, Calif., July 29 - The Bank of Israel said it decided to maintain the interest rate for August at 1¼%. It last lowered the rate by 25 basis points to 1¼% from 1½% in June.

Two weeks prior to that interest-rate reduction, the bank's monetary committee made an unscheduled decision to reduce the interest rate by 25 bps to 1½%.

The bank said that although actual inflation the past 12 months rose to the midpoint of the target, inflation expectations for the coming year, based on various sources, are below the midpoint of the inflation target range.

The bank also noted that indicators that became available in the past month point to continued growth of economic activity at the relatively moderate pace of the past two years, which eased concerns for an additional slowdown in growth.

The global economy continues to present a mixed picture, the bank said. There is apparent recovery in Japan and the United Kingdom, mixed macroeconomic data in the United States, a recessionary environment continuing in Europe and weakness persisting in emerging markets.

The Bank of Japan continued its quantitative easing, the ECB and Bank of England provided forward guidance for their monetary policy, which is expected to remain accommodative for an extended period, and the Federal Reserve said that tapering of its quantitative easing program will be depend on economic conditions.

Against the continued expansionary monetary policies in major economies, the shekel continued to appreciate in terms of the effective exchange rate, strengthening by 0.9% this month. It appreciated by 0.8% against the euro and by about 1.4% against the dollar, in line with the global trend.

The Consumer Price index for June increased by 0.8%, slightly more than the 0.7% projected. Over the past 12 months, the CPI was measured at 2%.

Due to these considerations, the monetary committee decided to keep the interest rate unchanged. The committee noted that it will continue to monitor developments in the Israeli and global economies.

The bank said its decision on the interest rate for September-October will be published on Aug. 26.

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