Israel retains interest rate at 0.5%

As expected the Bank of Israel has left interest rates at 0.5 percent, which is a further indication that it is nearing an end to the six month easing cycle and will continue to push long-term rates lower instead.

Short-term lending rates had been at a record low and other measures, such as buying government bonds and foreign currency, can also be introduced as an alternate measure to reignite the economy.

Over the past six months, between October and March, key interest rates have been cut six times amounting to a total of 3.75 percent as the cost of credit is slowly easing.

Over the last two months, the Bank of Israel has begun to lower long-term rates that have a direct impact on consumer loans by buying government bonds at a rate of around 200 million shekels a day, as well as $100 million of foreign currency a day, so as to increase exports by weakening the currency.

The central bank has stated that the policy is focusing on averting the problems and implications of the global economic downturn and then to help the economy back into recovery.

Bank of Israel’s Governor, Stanley Fischer, stated that with the other monetary tools that are being employed, inflation is beginning to creep back up and so now the importance and strength of the financial system will dictate future policy.

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