The Bank of Israel has raised its interest rate for April by 25 basis points to 1.5%. The bank described the decision as “part of the gradual process of returning interest to a more ‘normal’ level, intended to return inflation to within the target range and to keep it there, and to contribute to the further recovery of economic activity, while supporting financial stability.”

The decision comes against a background of economic growth that continues to strengthen, inflation expectations at the high end of the government’s price stability target range, and rising asset prices. However, even after this rise, monetary policy remains expansionist.

The bank was evidently aware of the difficulty raising rates when most central banks have not yet done so, and said, “Interest rates of the central banks of the leading advanced economies are very low, and are expected to remain so during the coming months. Nonetheless, some of them are continuing to reduce their use of special instruments of monetary accommodation, and other central banks are starting to increase their interest rates.”

Rafi Gozlan, macro strategist at Leader Capital Markets, said that the interest rate hike was a correct decision, and that a rise at this time broadcast a determined message in the face of the recent rise in inflation expectations, and would prevent unnecessary interest rate hikes in the future.

Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2010

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