Bank of Israel Policy Rate Kept at 0.75%

September 24, 2009

The Bank of Israel was one of many central banks that enacted several cuts in its policy interest rate during 4Q08 and 1Q09.  Two cuts totaling 75 basis points were announced last October, followed by two more cuts in November of 50 bps each, single cuts of 75 bps in December and again in January, and finally single 25-bp reductions in February and March.

The Bank of Israel remains the only central bank to increase its key rate after such a sharp series of declines.  However, the 25-bp increase to 0.75% announced last month was not lifted further after this month’s meeting.  A statement from the Bank of Israel today stressed the facts that other central banks are not likely to increase rates over the next few months, and unilateral tightening by Israel might subject the shekel to excessive upward pressure at a time of continuing uncertainty about the coming economic recovery.  Inflation of 3.1% lies above the 1-3% target ceiling, but it is expected to settle down into range as effects of a VAT increase fade and amid a soft labor market.  No hint is provided regarding the likely timing of a second rate increase.  However, today’s decision was not presented as a tactical pause, and the specific reason for not tightening today will be equally valid when the next interest rate announcement is made on October 26th.  I tend to doubt that a rate hike will occur then.

Central banks in the United States, Norway, Taiwan, Hong Kong, the Czech Republic, South Africa, and Israel have so far announced interest rate decisions this week.  Each one decided not to change rates.  Tomorrow we hear from Colombia’s central bank, and its choice is also likely to be to leave rates as they are.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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