The Bank of Israel left its benchmark interest rate at 2.5% for a third straight month as expected on Monday, as higher energy costs push up inflation pressures while the economic growth outlook has turned more optimistic.
The central bank had cut rates every other month from September to January and left them on hold in February and a month ago.
Annual inflation rose to a rate of 1.9% in March from February's 1.7%, which was the lowest level in four years. The bond market in March had factored in an inflation rate of 2.8% in a year's time, near the upper end of a 1-3% annual target.
Recent data appears to suggest the Israeli economy has bottomed out, while the US economy has started to recover. In keeping rates steady on March 26, the Bank of Israel raised its 2012 economic growth estimate to 3.1% from 2.8%.
The Bank of Israel is expected to leave rates unchanged for the next few months, with the next move thought likely to be a rate hike later in 2012 or early 2013.