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Bank of Israel Governor Stanley Fischer. Decision lauded
Photo: Hagai Aharon

Fischer holds interest rate at 3.0%

(VIDEO) Bank of Israel governor leaves benchmark lending rate unchanged, says considering introducing additional measures in housing credit field. Industrialists welcome decision

The Bank of Israel left its benchmark lending rate unchanged on Sunday and said it is considering introducing additional measures in the housing credit field.

 

"Inflation expectations for the next 12 months derived from the capital market declined, due in part to the increase in the interest rate for April," the central bank said in a statement explaining its decision to hold the rate at 3.0% for May.

 

"The recent appreciation of the shekel and the recent increases in the interest rate are expected to moderate the rate of inflation in the coming months."

 

Of 15 economists polled before the rate decision eight predicted no change while seven forecast a quarter-point rise.

 

The benchmark rate has been raised nine times since August 2009, including a half-point increase announced in late March.

 

Though annual inflation rose slightly to a 4.3% rate in March – above an official target of 1 to 3% - inflation expectations have slipped to 3.1% for the next 12 months.

 

The shekel is trading at a 2-1/2 year high of 3.405 against the dollar, having gained 8% since early February.

 

The central bank said house prices continued to increase this month, and in the last 12 months have risen by 16.1%. The balance of housing credit increased by 12.8% in the 12 months to February.

 

"Against the background of these developments, the Bank of Israel is considering the introduction in the near future of additional measures in the housing credit field," it said, adding it was keeping a close watch on the assets market, especially housing.

 

The central bank took some measures last year to curb the risks related to mortgages but loan rates remain low, contributing to the spike in housing prices.

 

Amir Kahanovich, chief economist at brokerage Clal Finance, said just the fact that limits on mortgages are being considered has an impact.

 

The measures, however, "would be aimed at maintaining financial stability in the banking system and their effect on housing prices would be low," he said.

 

'Governor did the right thing'

Shraga Brosh, president of the Manufacturers' Association of Israel, welcomed the Bank of Israel's decision not to raise the interest rate. "Raising the key rate last month was an understandable but dangerous move, which as we had warned, led to further damage to Israeli exports' competitiveness.

 

"We are pleased that the governor decided to leave the interest rate unchanged so as not to weaken the dollar even more, but we’re still expecting a fiscal or monetary solution for the exchange rate problem. The exports cannot work with such exchange rate and declines in exports will affect the entire economy's activity."

 

Yehuda Elhadef, president of the Israel Crafts and Industry Association, said that "in light of the expected slowdown in the economy's growth rate, the ongoing uncertainty in our region and the continuing trend of the reevaluation of the shekel, the governor acted wisely and with reason."

 

Yehuda Talmon, president of the Lahav Israel Association of the Self-Employed said that "the Bank of Israel governor did the right thing by not raising the interest rate this month. The interest rate in Israel is high as it is compared to the rest of the world, and badly affects the growth of small and medium-sized businesses.

 

"The decision not to raise the key rate this month is a welcomed move, which prevents the entry of additional speculators betting on the shekel," he added.

 

The Bank of Israel said the key lending rate was expected to reach 4.4% in 12 months based on the Tel Aviv Interbank Offer Rate, while economists project 4.2%.

 

Indicators of economic activity published this month support the assessment that the rapid expansion of activity and demand continued in the first quarter of 2011, the central bank said.

 

The Bank of Israel's staff now predicts gross domestic product growth of 4.5% in 2011, up from a previous forecast of 3.8%.

 

Tomer Zelzer contributed to this report

 

 


פרסום ראשון: 04.24.11, 18:42
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