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Bank of Israel: Interest Rate to Remain Stable at 2.25%

The Bank of Israel announced Monday there will be no change in the prime interest rate next month.
By Chana Ya'ar
First Publish: 8/27/2012, 8:29 PM

Money.
Money.
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The Bank of Israel announced Monday there will be no change in the prime interest rate next month. The rate currently stands at 2.25 percent.

In a statement explaining its decision, the Bank said, "This is consistent with the Bank of Israel's interest rate policy, which is intended to entrench the inflation rate within the price stability target of 13% a year over the next twelve months, and to support growth while maintaining financial stability.

“The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel, the global economy, monetary policies of major central banks, and developments in the exchange rate of the shekel."

The Bank also noted that over the past 12 months there has been a slowdown, “even a halt” in the increase in home prices, but added “there was an increase this month in new mortgages granted, though it is too early to tell if there has been a change in this trend.”

In addition, the Bank cited concerns about the global economy, and the level of economic risks from around the world due to developments in Europe.

The Israel Industrialists' Union praised the decision by the Bank. The union suggested, however, that BOI Governor Stanley Fischer consider cutting the interest rate in order to expand the economy and reduce the unemployment rate.

The group added that the Bank need not fear that lower rates would increase inflation. In the past 12 months, the union pointed out, as rates were cut the inflation rate has remained below the target set by the Bank.

This will be the third month in a row the prime rate will stand at 2.25 percent. The last time the Bank cut the interest rate was at the end of January, by 25 basic points, from 2.75 percent to 2.5 percent. The rate then stood firm from February 1 through June 30.