The Bank of Israel said on Tuesday it will reduce the frequency of interest rate decisions it makes to eight times a year from the current 12, bringing it in line with leading global central banks.
The bank’s monetary committee voted 3-1 in favor of the change, which will come into effect sometime in 2017. It said a schedule for next year’s interest rate decisions would be published in the coming weeks.
The central bank has been examining such a change for months, noting that “the global trend is to reduce the frequency of the decision."
“A frequency of monthly decisions is today mostly a feature of developing economies, and economies characterized by a high basic rate of inflation,” the central bank said.
Israel’s economy is stable enough, the committee determined, that the benefits, like allowing for better analysis of economic trends, outweigh the loss in flexibility of monthly decisions.
“The volatility of Israel’s main economic variables – GDP, inflation, and effective exchange rate – is not high by international comparison,” the bank said. “Rapid responses to stabilize [long-term inflation] expectations are not required.”
The frequency of interest rate decisions was recently reduced to eight at the European Central Bank, the Bank of Japan and the Bank of England to match that of the U.S. Federal Reserve. The committee members also said that in those cases, “a negative market reaction was not seen.”
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 a year and a half. 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.
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 of that year, it reversed course and said the committee would meet during Sukkot, because it needed the flexibility that regular monthly meetings provided.
Changing the frequency of decisions will also require Israel’s commercial banks to adjust their information technology systems.
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