Bank of Israel Governor Stanley Fischer on Monday left the key interest change unchanged at 1.5%, on the backdrop of the uncertainty in global markets in recent weeks and the desire not to harm the US dollar, which has seen a recovery recently.
It was the second straight month the central bank has kept rates steady after four quarter-point rate increases between August and late March.
At the same time, Fischer issued new instructions to the banks in terms of mortgages, in a bid to prevent a real estate bubble due to the low interest rate.
The global economic recovery, which was restrained due to the economic crisis in Europe, has increased the uncertainty in the Israeli economy. Raising the interest rate at this time may have made it more difficult for the economy to emerge from the crisis.
In addition, the economic growth slowed to 3.3% in the first quarter of 2010, compared to 4.8% in the last quarter of 2009.
Another reason for leaving the interest rate unchanged was the desire to encourage the exports industry, which has suffered due to the financial crisis and the low dollar rate. Increasing the interest rate may have appreciated the shekel and damaged the exporters' income.
Reponses
Chairman of the Finance Division of the Manufacturers' Association of Israel Ori Yehudai welcomed the Bank of Israel governor's decision to leave the interest rate unchanged. "Most central banks in the world are also careful with interest rate increases in a bid to provide the business sector with the best conditions for recovery," he said.
Yehuda Talmon, president of the Lahav Israel Association of the Self-Employed, said: "The governor did the right thing by not raising the interest rate. The economic crisis across Europe proves what we have been saying all along, that the danger of a financial crisis has yet to pass."
Yehuda Alhadif, president of the Association of Craft and Industry, welcomed the decision as well. "This will save the business sector about NIS 1 billion ($260 million) in financing costs, which can now be directed at recovery and growth."
Reuters contributed to this report