The Bank of Israel monetary council kept the interest rate for April unchanged at 2.5%. Almost all capital market analysts had expected the decision. This is the second successive month that the Bank of Israel has kept the interest rate unchanged after cutting the rate by 25 basis points at the end of January.
In justifying its decision, the Bank of Israel cited the fact that the Consumer Price Index (CPI) was unchanged in February, and that inflation over the previous 12 months is 1.7%. The Bank of Israel added that while inflation expectations are also within the government's 1-3% inflation target range, they have risen to 2.4-2.6%, driven by the global spike in energy prices, which it expects to continue.
In addition, the Bank of Israel said that the latest indicators show that Israel's growth rate is improving, and the Bank of Israel revised its 2012 GDP growth forecast to 3.1% from its previous forecast of 2.8%, made just three months ago. It also predicts 3.5% GDP growth in 2013.
Finally, the Bank of Israel cited favorable developments in the global economy and international capital markets, which have reduced the probability of significant deterioration in economic activity in Europe and the US in the near future. "Most US macroeconomic data surprised on the upside, and the US economy grew by 3% in the fourth quarter. In contrast, in the eurozone there was contraction of 0.3%. Macro data in emerging countries were mixed, but continue to indicate a moderate slowdown in their growth," it said.
"Interest rates in major economies remain low, and markets are not pricing in an increase in the interest rate this year by any of the central banks of large advanced economies. The Fed and ECB both kept their interest rates unchanged this month, as expected, and the Fed declared that it intends to maintain the federal funds rate at its near-zero level at least until the end of 2014. The ECB launched an additional monetary expansion program which includes injecting significant liquidity into eurozone banks."
Published by Globes [online], Israel business news - www.globes-online.com - on March 26, 2012
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