Israel keeps interest rate at ¼% to support economic activity recovery

By Toni Weeks

San Luis Obispo, Calif., Jan. 26 – The Bank of Israel decided to keep its interest rate unchanged at ¼% for February, according to a press release.

The bank stated that the move is consistent with its monetary policy, which is intended to return the inflation rate to within the price stability target of 1% to 3% a year over the next 12 months and to support growth while maintaining financial stability.

The Consumer Price Index was unchanged in December after falling by 0.2% in November and 0.3% in the prior month. The inflation rate for 2014 was negative 0.2%, led by declines in the food, fruit and vegetables, furniture and household equipment and clothing and footwear components.

Inflation expectations for the short term are below the lower bound of the target group against the background of, among other things, continued declines in energy prices worldwide and the expected effect of the reductions in water and electricity prices.

Recent indicators continue to point to an acceleration of activity in the fourth quarter after a slowdown in the third quarter. Fourth-quarter data indicated improvement in most industries, with a notable upturn in low-technology industries, which are more affected by the exchange rate.

The shekel weakened by 1.4% against the dollar and strengthened by 6.5% against the euro from Dec. 28 through Jan. 23. It appreciated by 0.4% in terms of the nominal effective exchange rate; the cumulative depreciation since August is 5.5%.

In Europe, a large-scale quantitative-easing program was recently announced, and interest rates were lowered in several countries, the bank noted.

According to the release, the monetary committee believes that the current level of the interest rate supports the continuation of the recovery in economic activity and the return of inflation to within the target range.

The decision regarding the interest rate for March will be published on Feb. 23.

The bank last cut the rate by 25 basis points in August and by 25 bps in July.

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