The Bank of Israel this evening announced that the interest rate for March 2010 will be unchanged at 1.25%. This is the second straight month that Bank of Israel Governor Stanley Fischer has kept the interest rate unchanged.

The Bank of Israel said that the main considerations behind the decision were low inflation, the continuing global economic recovery, and the low interest rates of the world's major central banks.

The Bank of Israel said, "The decision to keep the interest rate for March unchanged at 1.25% is part of the gradual process of returning interest to a more "normal" level; the process is intended to return inflation to within the target range and to contribute to the further recovery of economic activity, while supporting financial stability. The path of the interest rate will be determined in accordance with the inflation environment, the entrenchment of growth, both global and in Israel, the rate at which the major central banks increase their interest rates, and in light of developments in the exchange rates of the shekel."

The Bank of Israel statement continued, "The January CPI was the second successive surprisingly low index, with the two indices cumulatively more than half a percentage point lower than expected. Inflation expectations for the next twelve months calculated from the capital market, and forecasters' twelve-month inflation expectations are within the target inflation range, at 2.4% and 2.2% respectively. The assessments are that in the next few months, inflation measured over the previous twelve months will come back into the target range, in part reflecting the effect of the recent appreciation of the shekel, the reduction in VAT and the cancellation of the water surcharge."

However, the Bank of Israel cautioned, "Recent economic activity is continuing to develop positively. Various risk factors, however, still cast a shadow over the positive global growth trends."

Another factor in keeping the interest rate unchanged, according to the Bank of Israel is the low interest rates of other central banks. It said, "Interest rates of the leading central banks around the world are very low, and are expected to remain so during the coming months. Nonetheless, some leading central banks are reducing their use of special instruments of monetary accommodation."

The statement concluded, "The Bank of Israel will continue to monitor Israeli and worldwide economic and financial developments, and will use the instruments available to it to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system."

Published by Globes [online], Israel business news - www.globes-online.com - on February 22, 2010

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