Fischer Surprises With No Interest Rate Cut

Announcement delineated four reasons: Inflation within target range; economy continuing to grow; world financial markets improved somewhat; U.S. economic data shows improvement.

The Bank of Israel will keep January interest rates unchanged at 2.75%, the central bank announced Monday evening. The move surprised most analysts, who had forecast a quarter-percent rate cut to 2.5%. The governor of the Bank of Israel, Stanley Fischer, last month cut December rates by 0.25%.

The central bank's Monetary Committee said its decision was meant to keep inflation under control while aiding economic growth. "The current level of the interest rate helps to support the level of domestic economic activity and exports, and to keep inflation within the target range, and at the same time leaves the Bank room to react to developments in the global and domestic economy," the Bank of Israel's press release said.

The announcement delineated four reasons for the committee's leaving rates unchanged: Inflation is well within the target range; economic indicators show the economy is continuing to grow, even if at a slower rate than earlier this year and last year; financial markets around the world have improved somewhat in the last month, though uncertainty remains high; and U.S. economic data shows improvement.

The Bank of Israel said it "will continue to monitor developments in Israel's economy and the global economy and in the financial markets."

The Manufacturers Association said Fischer should have lowered rates in light of the economic slowdown, and called on the Monetary Committee to do so in coming months based on fears of a global recession.

While the central bank may have decided not to lower interestrates next month, it did indicate that it will continue to lower rates in the future due to the risks facing the global economy and its effects on Israel, said Jonathan Katz of Leader Capital Markets.