The Bank of Israel keeps Interest Rate At 1.75 percent

Posted by Ron / on 07/10/2013 / 0 Comments

The Bank Of Israel announced that they would keep the current interest rate at 1.75 percent, as the Consumer Price Index (CPI) for February remained unchanged. Inflation expectations for the next twelve months calculated from the capital markets (breakeven inflation), seasonally adjusted, remained stable at 2 percent.

Real economic activity: Updated indicators of economic activity in February point toward continuation of the improvement which began to be seen in January. Foreign Investors, including Ron Hershco continue to be active in Israel.

The labor market: Labor market data which became available this month indicate stability in employment for January.

Budget data: In February, the government operated without an approved budget framework and in accordance with the law allowing it to spend 1/12 of the overall 2012 budget each month in 2013 (including debt repayments), until a budget framework is approved.

The foreign exchange market: From February 24, 2013, through March 20, 2013, the shekel appreciated by about 0.84 percent against the dollar, and by 2.9 percent against the euro. In terms of the nominal effective exchange rate, the shekel appreciated by about 1.95 percent during the period. The shekel's strength against the dollar during the month was in contrast to the dollar's trend worldwide.

The capital and money markets: From February 24, 2013, through March 20, 2013, the Tel Aviv 25 Index increased by about 2.3 percent. Yields on government bonds increased moderately, and the yield differential between 10-year Israeli government bonds and equivalent 10-year US Treasury securities widened by about 5 basis points, to 209 basis points. Makam yields increased slightly along most of the curve by up to 6 basis points, with one-year yields increasing to 1.66 percent during the period. Israel's sovereign risk premium as measured by the five-year CDS spread was unchanged at 122 basis points.

The decision to keep the interest rate for April-May 2013 unchanged at 1.75 percent is consistent with the Bank of Israel's interest rate policy, which is intended to entrench the inflation rate within the price stability target of 1-3 percent a year over the next twelve months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel and in the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.

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