Bank of Israel Interest Rate Left Unchanged at 1.0% after Monthly Monetary Policy Committee Meeting

January 27, 2014

As in October, November and December, Bank of Israel authorities decided not to change policy.  Previously, cuts had been made in September and November of 2011, January, June, October and December of 2012, twice in May 2013 and, most recently, at the late September meeting.  Each of those nine cuts were a quarter percentage point in size and implemented in response to undesirable shekel appreciation that was dampening exports, GDP growth, and inflation.  Today’s statement does not declare an end to those developments.  The shekel advanced 1.5% on a trade-weighted effective basis between the December and January meetings.  Export growth was better in the final 2013 quarter than in 3Q but suffered a relapse in December.  GDP growth (2.4% between 3Q12 and 3Q13) will be only modest to moderate.  CPI inflation of 1.8% in 2013 was somewhat below the central bank’s 1-3% target midpoint and is expected to stay south of 2.0% in 2014. Private forecasters on balance look for another rate cut comparatively soon but were not anticipating a move this month.  Bank of Israel monetary policymaking used to be in the hands of former Governor Stanley Fisher, the likely next vice-chairman of the Federal Reserve, but is now decided by a committee, which is scheduled on February 24 to announce the interest rate level for March.  Fischer was a bold central banker, slashing the interest rate to a mere 0.5% during the Great Recession but then embarking on tightening sooner than any other central bank and lifting the interest rate by 275 basis points between August 2009 and May 2011.

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