Finally something happened exactly as expected: The Bank of Israel yesterday left Israeli interest rates for October unchanged at 4.25%. Also as expected, the decision was met by applause from some quarters and howls of protest from others. Excellence chief economist Shlomo Maoz, for one, suggested that the central bank was being inconsistent.
The decision by Governor Stanley Fischer follows four consecutive months of rate increases, each time by 0.25%.
The Bank of Israel said its decision is consistent with the goal of restoring price stability within a year. The central bank also factored in the spiraling uncertainty in global financial markets and local developments - namely signs that economic activity is slowing, and lowered expectations about Israel's economic growth this year and next.
The Bank of Israel's goal is to keep inflation at between 1% and 3%. However, 12-month inflation (looking back 12 months) is running at 5%, the bank said yesterday.
But Israel is far from alone in a high-inflation environment, analysts note. The world in general is suffering from intense inflation, in large part because of the increase in commodity prices. However, commodity prices and mainly oil are now falling, the central bank points out, which could lower inflation again.
However, just after the central bank's announcement, oil went wild. The price per barrel swung madly i nworld markets, soaring more than 16% to over $120 a barrel yesterday. It was the biggest one-day gain on record, Reuters reports.
The central bank also noted that last week, Israel's risk premium rose to its highest level since the eruption of the financial crisis in the United States. Again, Israel isn't alone: Risk premiums throughout emerging markets have been rising, especially since Lehman's collapse.
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