Bloomberg News

Bank of Israel Holds Rate for Second Month

February 25, 2013

The Bank of Israel kept its benchmark interest rate unchanged at its lowest in more than two years as rising house prices balanced slowing growth and inflation.

Governor Stanley Fischer and the monetary policy panel held the rate at 1.75 percent, the Jerusalem-based bank said on its website today. Ten of the 22 economists surveyed by Bloomberg forecast the decision, while the remainder predicted a quarter- point reduction.

The Bank of Israel has gradually reduced the borrowing rate from 3.25 percent in 2011 in an effort to shore up the economy amid the European debt crisis. The monetary expansion has helped fuel a surge in housing credit and home prices, which have increased by about 70 percent in the past five years.

“The housing prices situation is definitely worrying,” Yaniv Pagot, chief strategist at the Ramat Gan-based Ayalon Group Ltd., said prior to the announcement. “We are at a rate of increase that we haven’t seen since the end of 2011.”

The Bank of Israel imposed tighter regulations on home loans last week, requiring banks to set aside more capital and provisions.

Economic growth slowed to an annualized 2.5 percent in the fourth quarter, the slowest in more than three years, as exports and investment declined. Inflation slowed to 1.5 percent in January, remaining below the midpoint of the government’s 1 percent to 3 percent target for a fourth month.

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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