A Third Rate Hike For Israel

December 28, 2009

The Bank of Israel has matched its Australian counterpart for the most tightening moves this year, three.  Israel’s central bank had previously lifted its policy rate from a floor of 0.5% to 0.75% on August 24 and 1.0% on November 23rd.  Today’s 25-bp hike to 1.25% still leaves the rate level 300 basis points below its prior peak.  Eight rate reductions from October 2008 to March 2009 had cumulated to 375 basis points.  As in August and November, monetary officials underscored that policy remains expansionary, that is such will promote growth, not retard it.  The statement released today characterized today’s third increase as part of a gradual normalizing process and said the timing of future increases will depend on domestic growth, foreign growth, the tightening actions of other central banks (implicitly meaning the behavior of the shekel) and Israel’s inflationary environment.  Economic recovery is more firmly established than when the first rate hike was implemented, and inflation lies in the “upper part” of the central bank’s target rates.  Consumer prices are 3.8% higher than a year ago and up 2.6% excluding the impact of indirect tax increases.  The statement also notes upwardly rising prices on houses and other assets.

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


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