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Bank of Israel Leaves Interest Rate at 2% as Economy Expands

Nov. 26 (Bloomberg) -- The Bank of Israel kept its benchmark interest rate unchanged following last month’s cut, after Governor Stanley Fischer said there are signs that economic growth next year may be faster than expected.

The Monetary Policy Committee held the rate at 2 percent, the Jerusalem-based bank said on its website today. All but one of the 22 economists surveyed by Bloomberg had forecast the decision. The other said the bank would reduce the rate for a second consecutive month.

“Most indicators of real economic activity that became available this month support the assessment that the moderate growth of activity continues, and is expected to continue in the coming months,” the central bank said in its decision.

The Bank of Israel cut the benchmark by a quarter-point in October and has gradually reduced it from 3.25 percent in September 2011, in an effort to shore up the economy amid the European recession and global slowdown.

Israel’s shekel gained against the dollar following the rate decision, advancing as much as 0.3 percent. It was trading at 3.8526 at 6:21 p.m.

The central bank is likely to reduce the rate again in the next few months, said Alex Zabezhinsky, chief economist at DS Securities & Investments Ltd. in Tel Aviv. He cited an easing in inflationary pressure and a slowdown in the housing market.

Inflation Slowing

“Some decline in the inflation environment over recent months is likely to support a downward revision of the inflation forecast for the coming year,” the Bank of Israel said.

Annual inflation slowed to 1.8 percent in October from 2.1 percent the previous month, coming in below the 2.2 percent median estimate of 14 analysts surveyed by Bloomberg. The government’s target range is 1 percent to 3 percent. Inflation expectations for the next 12 months, as measured by a central bank survey of economists, slowed to 1.9 percent in November from 2.2 percent the previous month.

Growth is expected to ease to 3.5 percent this year, from 4.6 percent last year, the Jerusalem-based Central Bureau of Statistics said Oct. 15. Indicators for 2013 are becoming “more positive” and the economy may do better than the 3 percent expansion forecast, Fischer said on Nov. 14.

Export Markets

Finance ministers from the European Union are meeting today in Brussels for the third time this month to try to clear the next instalment of aid to Greece and discuss ways to keep the country a solvent member of the currency bloc. Israel relies on exports for about 40 percent of economic output and Europe is one of its main markets.

Israel’s eight-day conflict with Gaza, which ended in a Nov. 21 cease-fire accord, isn’t likely to hurt the economy significantly, Fischer said last week, citing swift recoveries from previous military conflicts.

Israel is doing well relative to the global economy, and the recent conflict won’t have a long-term impact, Bill O’Neill, chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, said today in a Tel Aviv press conference, according to an e-mailed statement.

“We expect the rate to be kept unchanged for some time in the absence of a sharp deceleration in growth indicators and/or renewed expectations of a bleaker picture in Europe,” Tevfik Aksoy, chief economist for Central and Eastern Europe, the Middle East and Africa at Morgan Stanley in London, said before the announcement.

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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