Bloomberg News

Bank of Israel Holds Benchmark in Final Fischer-Led Decision (1)

June 24, 2013

The Bank of Israel left the benchmark lending rate unchanged after reducing it twice last month in the final monetary policy decision steered by Governor Stanley Fischer.

The bank left borrowing costs unchanged at 1.25 percent, citing the Federal Reserve’s announcement of the expected removal of policy accommodation in the future. Thirteen of 20 economists surveyed by Bloomberg forecast the decision, while seven predicted a quarter-point cut.

“The strengthening of the dollar globally as a result of reported plans to halt quantitative easing supports the dollar-shekel exchange rate in recent days, making it less pressing for the central bank to immediately continue trimming the interest rate differential vis-a-vis the dollar,” said Yaniv Pagot, chief strategist at Ayalon Group Ltd., one of the analysts who predicted the decision.

Fischer, who is stepping down at the end of the month after eight years at the central bank’s helm, has gradually lowered the benchmark rate from 3.25 percent in 2011 to help spur growth in the export-driven economy. He will be replaced by Jacob Frenkel, chairman of JPMorgan Chase International, who served as governor of the central bank from 1991 to 2000, Prime Minister Benjamin Netanyahu announced yesterday.

Shekel Appreciation

Together with the two rate cuts last month, the Bank of Israel announced a plan to purchase $2.1 billion by the end of the year in an effort to help moderate the shekel appreciation, which has hampered exports. The Israeli currency has gained about 3 percent in the past six months, making it the best performer among 31 major currencies tracked by Bloomberg.

Inflation (ISCPIYYN) remained below the floor of the government’s 1 percent to 3 percent target for a second month in May. It is expected to accelerate to close to the midpoint of the target in the next 12 months, according to the average of forecasts in a central bank survey released June 18.

Economic growth, excluding new gas output, is forecast to slow to 2.7 percent in 2014, from 2.9 percent last year, excluding first-time natural gas production, the Organisation for Economic Cooperation and Development said May 29.

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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