Governor of the Bank of Israel Prof. Stanley Fischer raised the interest rate for August by 25 basis points to 4%.
This is the third monthly consecutive interest rate hike. The interest rate is now at its highest level since it was at 4.25% in February 2008.
The Bank of Israeli cited the need to support the return of the inflation rate and inflation expectations to around the middle of the1-3% inflation target range, which it views as essential as a basis for sustainable growth.
The Bank of Israel noted that macroeconomic data have given a mixed picture. The Consumer Price Index (CPI) rose 4.8% in the past 12 months and inflation expectations for the next 12 months are around 3%, the ceiling of the price stability target. However, the CPI excluding energy, food, and fruit and vegetables rose by 1.9% over the past 12 months and the "surprisingly low CPI in June" resulted in a lowering of inflation expectations. Recent drops in commodity and energy prices will moderate inflationary pressures.
As for growth, the Bank of Israel noted that Israel’s GDP is close to its potential. Import and export data for June indicate continued expansion, despite the fact that the strengthening of the shekel against the dollar since the beginning of the year is a factor tending to moderate exports and thus economic activity; and data on sales in retail chain stores show continued increases. However, the Bank of Israel’s Companies Survey and the May and June composite state-of-the-economy indices point to a slowdown in the rate of growth.
The Bank of Israel concluded that it will continue to support the attainment of a range of macroeconomic objectives, in particular the encouragement of employment and growth and to support the stability of the financial system.
Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2008
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