Bank of Israel announced at the end of February it will leave the basic interest rate unchanged at 2.5% for March 2012.
The last time Bank of Israel has reduced its basic interest rate was a month back in January 2012 when it reduced the rate by 0.25 percent points. During 2011, Bank of Israel raised the Israeli interest rate four times mainly during the half of the year and cut the interest rate three times during the last few months.
This change in direction shows that the Bank of Israel is more concern that the Israeli economy will pull into an economic slowdown especially considering the slowdown in Euro Zone’s economy and the ongoing debt crisis than reaching the inflation target of Bank of Israel (3%).
Besides as of January 2012, Israeli inflation rose by only 2.0% in the past twelve months which is well in the Bank’s annual inflation target rate of 3%. There are expectations that the CPI will continue to be in the same range of less than 3% during 2012.
The low inflation rate on the one hand the potential economic slowdown on the other increases the chances of increases of additional interest rate reductions in the months to come.
For further reading: