Stanley Fischer - Emil Salman - 25102011
Stanley Fischer Photo by Emil Salman
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Bank of Israel interest rates would stay unchanged at 3% for November, the central bank said Monday. That's exactly what economists had thought the Bank of Israel would do.

Nevertheless, the announcement does all but spell out that rate cuts are in the offing, especially given deep concern about the state and stability of the euro bloc. That area and its woes receive special attention in the Bank of Israel's announcement.

In contrast to its usual clarity, the central bank didn't say by what majority the decision had been reached in the monetary council.

Moreover, this was the first time the central bank rate had been determined by a panel rather than by the governor himself.

Interest rates almost the world wide have been lowered to rock-bottom as the global economic crisis raged from late 2008. Israeli interest rates reached 0.5% at their lowest, in April 2009. Then, the Bank of Israel, headed by Stanley Fischer, became one of the first western central banks to start to jack up the policy rate. At the time, the policy change was explained by the robustness of the Israeli economy and the need to weaken the shekel (to support exports ). Another powerful impetus was home prices, which had shot skywards as interest rates dropped.

But this year, Fischer again blazed a trail, reversing direction and raising the benchmark rate to 3% for October.

The monetary committee consists of six people, three from the central bank itself - Fischer, the chairman; his deputy, Karnit Flug; and Fischer's senior adviser, Barry Topf. The other three members of the committee are members of the general public - Reuben Gronau, Rafi Melnick and Alex Cukierman, all of whom are economists of renown.

In its unusually long announcement, the Bank of Israel explains that leaving the rate unchanged (rather than lowering it, as a small minority of economists had predicted ) would give it more room to maneuver, if needed.

"Uncertainty about the continuation of the global economic recovery increased this month, primarily against the background of difficulties in major economies," the central bank wrote, adding there is a "lack of clarity regarding rescue plans developing in Europe."

The base scenario was for a standstill in Europe and low growth in the United States, the Bank of Israel noted, adding that there were signals that economic activity was starting to slow down in the emerging markets as well.

"The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel, the global economy, the monetary policies of major central banks and developments in the exchange rate of the shekel," the Bank of Israel wrote.