BoI Leaves Overnight Interest Unchanged

As economic observers had widely expected, the Bank of Israel yesterday left interest rates for May unchanged at 0.5%, which remains the lowest level in Israeli history. Among the reasons behind his decision, the main one was that the risk of a deflationary spiral has abated, Governor Stanley Fischer explained.

Also, the already low interest rates and other monetary tools, mainly buying foreign currency and government bonds, have buoyed the financial system. The moves have done this by reducing the cost of lending, the Bank of Israel said.

Inflation has been staging a bit of a comeback: The consumer price index gained 0.5% in March after four months below the flatline, though over the last 12 months the CPI has lost 0.1%. The Bank of Israel's target range for inflation is 1% to 3%.

However, lest the reader become sanguine, the Bank of Israel adds that indicators regarding the first quarter (which is over) show decline, mainly because of contracting global demand. Just last week the central bank lowered its GDP growth forecast for Israel to 1% in 2010. Also, the composite State of the Economy index dropped 0.9% in March, and the companies survey about to be published shows a further contraction of activity.