Bank of Israel Keeps Benchmark Interest Rate at 0.25%

October 27, 2014

A dozen interest rate reductions were implemented by the Israeli Monetary Policy Committee between September 2011 and August 2014 including three this year.  According to a statement explaining today’s decision, “the effects of the recent interest rate reductions, which brought the interest rate to a level of 0.25 percent, have not yet been fully reflected in activity and in inflation.”  As with other central banks, there’s a reluctance to cut the nominal rate to zero, but the policy bias is seemingly skewed toward ease because inflation is negative, growth has slowed, expected inflation has eased and lies below the 1-3% target range, and global growth risks are more heavily stacked to the downside.  The statement notes that consensus expectations regarding the timing of a first fed funds rate hike in America has been pushed outward to October of next year.  With negative on-year inflation of minus 0.3% in September, a 4% trade-weighted depreciation of the Israeli shekel since the start of 2014 is not a cause for concern.

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



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