Bank of Israel Mulls Plan to Cut Down of Interest Rates Adjustments

Move would end practice of monthly adjustments and put it in line with many of the world’s central banks.

Olivier Fitoussi

The Bank of Israel is weighing reducing the frequency with which it sets the base interest rate from once a month to just eight times per year, in line with many of the world’s central banks, the bank announced Thursday.

“In the past two years, a number of central banks have reduced the frequency of monetary policy decisions. Among them, the European Central Bank, the Bank of England and the Bank of Japan have transitioned from monthly decisions — 12 or more decisions per year—to a twice quarterly frequency — eight decisions per year,” the central bank said.

The announcement comes as the Bank of Israel continues to maintain its main interest rate at a record low 0.1%, where it has been for 16 straight months. Like other central banks, it has relied on currency market interventions and other measures to help guide the economy, where the main challenge right now isn’t inflation but maintaining economic growth.

“It’s been more than a year that there’s been no change in the interest rate, even while some countries have gone so far as to set negative interest rates to help markets and their economy,” said Rafi Gozlan, chief economist at IBI Israel Brokerage & Investments “But the Bank of Israel’s concerns about a real estate market bubble have caused it to avoid taking extreme steps, like a negative interest rate. So no one is expecting any change in rates.”

The Bank of Israel previously experimented with reducing the frequency of rate decisions in February 2013, when it said it would skip the two rate decisions that fell close to the Passover and Sukkot holidays in April and September. The economic data its rate-setting monetary committee would have to work with would be too old due to the holidays, it said at the time.

However, in September that year, it reversed course and said the monetary committee would meet during Sukkot, because it needed the flexibility that regular monthly meetings provided.

Changing the frequency of decision would require Israel’s commercial banks to adjust their information technology systems. The Bank of Israel said it was consulting with them about the implications.