Bank of Israel Holds Rate at Lowest in More Than Two Year

The Bank of Israel left its benchmark interest rate unchanged after a surprise cut last month that brought the rate to the lowest in more than two years.

Governor Stanley Fischer and the monetary policy committee held the rate at 1.75 percent, the Jerusalem-based bank said on its website today. All 22 economists surveyed by Bloomberg forecast the decision.

“For the first time in a long while, investment houses assess that the risks in the global economy have decreased,” the central bank said in an e-mailed statement, adding that inflation expectations for the year ahead indicate the rate will be below the midpoint of its target range.

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 International Monetary Fund said Jan. 23 that the global economy would expand 3.5 percent this year, less than the 3.6 percent forecast in October. The euro area economy is expected to shrink 0.2 percent in 2013, instead of growing 0.2 percent as forecast in October.

The Israeli economy, which is highly dependent on exports, is expected to expand by 3.8 percent, the Bank of Israel said in December, updating its forecast to include natural gas production. Excluding gas output, the growth outlook was revised down to 2.8 percent, it said. The economy expanded 3.3 percent in 2012, the slowest since 2009.

Shekel Drops

“From the central bank’s point of view, the local conditions mostly support another cut in the rate, despite the global conditions that mostly support waiting,” Amir Kahanovich, chief economist at Clal Finance Brokerage Ltd., said in an e-mail. Kahanovich added that he sees a possible rate cut already by May.

The shekel slipped 0.2 percent to the 3.7277 to the dollar following the rate decision.

The central bank also noted a continued rise in home prices and said it hasn’t yet seen the limitations it placed on mortgages that went into effect at the beginning of November have an impact, according to the statement.

In the 12 months ending in November, home prices increased by 5.7 percent, compared with 3.7 percent in the 12 months to October.

The decision was the first by the central bank after Israeli elections on Jan. 22, that gave Prime Minister Benjamin Netanyahu the most seats in parliament and the best chance to form the next ruling coalition. The centrist Yesh Atid party came in a surprising second place.

Moody’s Investors Service said today that a centrist government that may emerge from the elections is expected to “emphasize economic and social reforms and reassert the importance of budget discipline, all credit positives.”

To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net; Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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