In the past year, the central bank has reduced its key rate four times by a total of 1%.
The last interest rate cut was carried out three months ago on the backdrop of the moderate growth and inflationary pressures in the Israeli economy. Cutting the key interest reduces manufacturers' costs and raise demands, and thus helps encourage the economic activity and increase growth. On the other hand, raising demands increases the pressure for price hikes.
Monday evening's decision to keep the interest rate unchanged was affected by recent developments in the Israeli economy. The consumer price index for the month of August soared by an unusual 1%. As a result, the actual inflation rate for the past 12 months now totals 1.9% compared to 1.4% last month.
The expected inflation rate for the next 12 months has fallen slightly 0.1% in the past week, but it is still relatively high at 2.4%.
The main reasons for the relatively high CPIs expected in the coming months are the 1% VAT increase initiated by the government and the anticipated price hikes expected in a variety of food products following the global rise in the prices of goods.
The updated figures point to a certain economic recovery. Last week, the Central Bureau of Statistics updated its growth forecast for the first half of the year from 3% to 3.2%. The export of goods and services in the second quarter was updated from an annual increase of 10.3% to a 23.3% increase.
Additional reasons for the Monetary Committee's decision to avoid cutting interest rates is the fact that the 2013 State Budget has yet to be submitted to the government's approval, and recent troubling development in the housing market.
The amount of new mortgages registered a new record of NIS 5.9 billion (about $1.52 billion) in August, and apartment prices increased by 0.8% in July.