The Bank of Israel has left the interest rate unchanged at 0.5% for May.
An important factor in the decision was apparently the high Consumer Price Index (CPI) reading of 0.5% for March. Over the last 12 months, inflation has been 3.6%. The Bank of Israel said, "The risks that the economy will slide into deflation have declined, and in the current circumstances the probability that inflation will return to within the target range by the end of the year has increased."
The central bank,which is headed by Governor of the Bank of Israel Prof. Stanley Fischer, noted that since the publication of the CPI for March, inflation expectations for twelve months forward derived from the capital market have risen slightly, and last week reached 0.8%, still below the lower limit of the inflation target.
At the same time, the Bank of Israel claims that the credit easing cycle it undertook, both in terms of interest rates and its other moves, has succeeded in easing the cost of credit, and the conditions created by the Bank of Israel's policy are serving to moderate the effects of the global crisis and to help the economy recover from the global economic crisis.
While the bank notes that data continues to point to a "further contraction of activity", other data points to "a moderation in the rate of decline".
The Bank of Israel also referred to unemployment in the economy, saying that the crisis is affecting the labor market, but with a lag. "The unemployment rate rose in January to 6.8%. In the first quarter of 2009 claims for unemployment benefit increased by 20%, and in March alone, by 10%. The Employers Survey for the first quarter presents a similar picture: the employment gap, that is, the difference between the number of positions filled and the number of terminations of employment, deteriorated seriously, with a negative balance of 40,000, compared with a negative 10,000 in the previous survey. Despite the weakness in the labor market, the average wage per employee post increased by 1.1% in January."
Published by Globes [online], Israel business news - www.globes-online.com - on April 27, 2009
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