Bank of Israel Retains 0.25% Key Interest Rate

September 22, 2014

Following back-to-back cuts of 25 basis points in July and August, Israeli monetary officials left their key interest rate at 0.25% as most forecasters were expecting.  This level is even below the the 0.5% trough seen for five months in the middle of 2009.  The rate had been lowered in eight moves between October 2008 and March 2009 by a total of 425 basis points but then raised 275 basis points to a cyclical peak of 3.25% in June 2011.  Since September 2011, there have been a dozen cuts of 25 basis points, three times this year (February, July, and August).

A statement released today projects an acceleration of growth from 2.3% this year to 3.0% in 2015, along with CPI inflation of 1.0% in the year to September 2015.  The CPI target is 1-3%, and consumer prices in August were unchanged from a year ago. The top priority of monetary policy is returning inflation to its target, hopefully within a year and by allowing the shekel to decline if that’s necessary.  For now policy appears to be on pause, pending forthcoming data to assess the effect of the rate cuts implemented this past summer.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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