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Bank of Israel to Hold Interest at 3%

Eyeing negative trends in the US economy and desiring to mitigate inflation and housing costs, the Bank of Israel is holding the line.
By Gabe Kahn.
First Publish: 10/24/2011, 6:10 PM

Stanley Fischer
Stanley Fischer
Bank of Israel

The Bank of Israel will hold interest rates at 3% during November 2011, it said in a statement. Decisions governing interests rates in Israel are made by a six-person Monetary Committee in accordance with new Bank of Israel laws implemented in 2010.

The committee consists of three bank members, Bank Governor Prof. Stanley Fischer (Chairman), Deputy Governor, Dr. Karnit Flug and senior advisor Governor, Mr. Barry Topf; and three public appointees: Professors Reuben Gronau, Rafi Melnick, and Alex Zuckerman.

According the to Bank of Israel, the decision to leave rates unchanged for November after October's rate cut, are consistent with policies intended to stabilize inflation rates at of 1% to 3% for the next 12 months, and to support economic growth while maintaining fiscal stability.

The Bank of Israel said that keeping the interest rate at its current level gives it room to "respond to events in the global and local economies." It clarified, however, that while there were concerns about the negative trends in the US economy, recent macroeconomic figures were "better than expected."

The primary impetus for freezing interest rates for a month after last month's 25-basis point cut was due to the continuing decline in 12-month inflation expectations to 1.7-2.2%, the decline in inflation over the preceding 12 months, the slowing growth rate, and concerns of a negative turnaround in the Eurozone due to the difficulties in formulating a rescue plan for countries suffering debt crises.

Amid these trends, Israel's housing market has seen an increase in home prices over the twelve months through August remains relatively stable at a high level of over 12%, below last year's level of 20% growth. Nonetheless, Bank officials say they believe measures taken with regard to mortgages and real estate taxation will begin to mitigate high housing prices during the coming year.