The Bank of Israel has kept the interest rate for August at its historic low of 0.5%.
At the same time, the Bank of Israel said that it is stopping its program of buying Israeli government bonds.
Governor of the Bank of Israel Prof. Stanley Fischer will continue the bank's program of buying dollars.
The consensus expectation among economists was for the interest rate to remain unchanged, though a small group of gave a 10-20% chance for the rate to rise to 0.75%.
In explaining its moves, the bank pointed to inflation, as the Consumer Price Index (CPI) rose a higher than expected 0.9% in June. Inflation over the previous twelve months reached 3.6%, and one-year forward inflation expectations are close to the upper limit of the 1-3% target inflation range. The bank also said that the increases in the CPI are expected to be high in the next two months as well, mainly because of the increases in VAT and government-supervised prices, although unemployment will restrain prices to an extent.
Another factor in the decision was the fact that the fall in GDP may be moderating, or even be over, although the bank said it was too early to determine if a turning point has been reached.
Published by Globes [online], Israel business news - www.globes-online.com - on July 27, 2009
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