Governor Stanley Fischer
Photo: Gil Yohanan

Bank of Israel sees inflation easing

Minutes from central bank's most recent meeting show declining house prices, easing inflationary pressures and concern over Europe's economy led Governor Stanley Fischer to leave short-term borrowing costs unchanged last month

Declining house prices, easing inflationary pressures and concern over Europe's economy led the Bank of Israel to leave short-term borrowing costs unchanged last month, minutes of its most recent meeting showed.


Governor Stanley Fischer left the central bank's key lending rate at 1.25% for a second straight month at the February 22 meeting, citing expectations of easing inflation pressures in the coming months.


All four central bank officials recommended that Fischer – who takes the decision alone after discussing the economic environment and outlook – keep rates steady, the minutes released on Monday showed.

Central bank officials were also concerned that a rate hike might further boost the shekel currency.


The central bank reiterated that interest rate increases in 2009 were part of a gradual process to bring the rate back to a more "normal" level that reflected the economic recovery.


Fischer, whose has yet to indicate whether he will seek another term when his current tenure ends at the end of April, was the first major central banker to tighten policy when he raised the key rate last August by a quarter percentage point to combat rising inflation expectations. He also increased the rate by a quarter point in November and December.


"After considering ... the uncertainty regarding the pace of the reduction in the inflation environment in light of the surprisingly low CPIs of the last two months, and the uncertainty about the strength of future global growth, the governor decided to leave the interest rate unchanged at 1.25%," the minutes said.


The consumer price index fell by a bigger than expected 0.7% in January from December, due mainly to a drop in house prices, the cancellation of a water surcharge and a fall in the value added tax rates.


Policymakers said expectations were for inflation to drop back to an official annual target of 1 to 3% in the second quarter of 2010, partly on the shekel's appreciation, from a rate of 3.8% in January.


Inflation expectations for the next 12 months dipped to 2.4% after the publication of the January CPI.


The Bank of Israel said that while Israel's economic recovery was strong, with growth seen at 3.5% in 2010, "negative developments in some European countries with high deficit/gross domestic product and debt/GDP ratios" posed risks to positive global growth trends.


The central bank expects interest rates in advanced economies to start rising in the second half of the year, beginning in Europe.


פרסום ראשון: 03.09.10, 08:06
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