Bloomberg News

Bank of Israel Leaves Benchmark Rate at 2% as Economy Expands

November 26, 2012

The Bank of Israel kept its benchmark interest rate unchanged following last month’s cut, after Governor Stanley Fischer said there are signs that economic growth next year may be faster than expected.

The Monetary Policy Committee held the rate at 2 percent, the Jerusalem-based bank said on its website today. All but one of the 22 economists surveyed by Bloomberg had forecast the decision. The other said the bank would reduce the rate for a second consecutive month.

“We expect the rate to be kept unchanged for some time in the absence of a sharp deceleration in growth indicators and/or renewed expectations of a bleaker picture in Europe,” Tevfik Aksoy, chief economist for Central and Eastern Europe, the Middle East and Africa at Morgan Stanley in London, said before the announcement.

The Bank of Israel cut the benchmark by a quarter-point in October and has gradually reduced it from 3.25 percent in September 2011, in an effort to shore up the economy amid the European recession and global slowdown.

Growth is expected to ease to 3.5 percent this year, from 4.6 percent last year, the Jerusalem-based Central Bureau of Statistics said Oct. 15. Indicators for 2013 are becoming “more positive” and the economy may do better than the 3 percent expansion forecast, Fischer said on Nov. 14.

Export Markets

Finance ministers from the European Union are meeting today in Brussels for the third time this month to try to clear the next instalment of aid to Greece and discuss ways to keep the country a solvent member of the currency bloc. Israel relies on exports for about 40 percent of economic output and Europe is one of its main markets.

Israel’s eight day conflict with Gaza, which ended in a Nov. 21 cease-fire accord, isn’t likely to hurt the economy significantly, Fischer said last week, citing swift recoveries from previous military conflicts.

Israel is doing well relative to the global economy, and the recent conflict won’t have a long-term impact, Bill O’Neill, chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, said today in a Tel Aviv press conference, according to an e-mailed statement.

Annual inflation slowed to 1.8 percent in October from 2.1 percent the previous month, coming in below the 2.2 percent median estimate of 14 analysts surveyed by Bloomberg. The government’s target range is 1 percent to 3 percent. Inflation expectations for the next 12 months, as measured by a central bank survey of economists, slowed to 1.9 percent in November from 2.2 percent the previous month.

“We think that the slightly negative ex-ante real interest rates are sufficient to maintain the accommodative stance,” Aksoy said.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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