Low projected inflation for this year combined with the economic recession led all four members of the Bank of Israel's narrow monetary policy forum to support leaving the bank's key interest rate unchanged in the discussion on the interest rate for June. The Bank of Israel released the protocols of the discussion today.
Four forum members make their recommendations to the Governor of the Bank of Israel, who then decides about the interest rate. In the discussion about the June decision, the participants were also unanimous in recommending a continued expansive monetary policy through other instruments at the bank's disposal.
Besides keeping its interest rate at a low 0.5%, the Bank of Israel has been buying $100 million worth of foreign currency daily in order to support the shekel-dollar exchange rate and assist Israeli exports. The Bank of Israel has also been buying long-term government bonds to the tune of NIS 200 million daily to reduce the yields on these bonds.
In the first quarter of 2009, Israel's economy shrank at a rate of 3.6%. Inflation for the past twelve months was 3.1%, slightly above the government's 1-3% target range, but inflation expectations for the coming twelve months, as derived from the capital market, are lower, at 2.4%.
The Bank of Israel sees economic growth resuming towards the end of this year. Recent data showing that the recession is moderating support this forecast. The bank stressed support for employment and growth as goals of its policy, saying, "The Bank of Israel will continue to act to achieve the price stability target, and closely monitor Israeli and worldwide economic developments, with the intention of encouraging employment and growth and supporting financial stability."
Published by Globes [online], Israel business news - www.globes.co.il - on June 8, 2009
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