Bank of Israel Monetary Policy Left Unchanged

February 22, 2010

A decision to leave the Bank of Israel’s key policy rate at 1.25% matched the market consensus.  A statement from officials mentioned lower-than-expected CPI inflation in both December and January as the main factor behind today’s decision and noted as well that measures of expected price inflation remain benign and anchored at an in-target pace of about 2.5%.  GDP growth accelerated to an annualized pace of 4.4% last quarter from around 2% in 3Q, but 7.8% unemployment and a 2.6% on-year decline of industrial production are legacies of the prior recession.  From a peak of 4.25%, monetary officials cut their key rate by a combined 375 basis points in eight moves from October 2008 to March 2009.  However, Israel was in the forefront of reversing that accommodation, raising the interest rate by 25 basis points each last August 24, November 23, and December 28. No doubt more tightenings lie ahead this year.  The March policy announcement will be made atypically on Sunday the 28th because Monday the 29th is the first night of Passover.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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