Bank of Israel Benchmark Interest Rate Left at 2.0%

October 25, 2010

As analysts anticipated, there was not a seventh rate increase.  The six increases, each by 25 basis points, were announced in August 2009, November, December, March 2010, July and September.  A statement from the Bank of Israel reiterates that a process remains in place of gradual rate normalization that should lift the key rate to around 2.9% in late 2011 but explains that no further increase is being announced now in light of recent monthly indicators suggesting slower economic growth and action being taken separately to cool house price inflation.  House prices thus far in 2010 are up almost 10%, but CPI inflation of 2.4% in the year to September is in line with the bank’s target and expectation.  Consumer prices are forecast to rise around 2.5% over the coming twelve months.  Real GDP grew briskly in the second quarter and was 4.8% greater than a year earlier.

The Bank of Israel was the first central bank anywhere to raise its key interest rate following the world recession.  Previously, eight rate cuts had been undertaken between October 2008 and March 2009, reducing the central bank rates from a peak of 4.25% to a trough of 0.50%.

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



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