Fischer Vows to Tamp Down Inflation, Maintain Monetary Expansion

Inflation in Israel will return to the midpoint of the price stability target range set by the government, vows the Bank of Israel. That's at some point. For the nonce, the central bank, headed by Governor Stanley Fischer, means to stick to its expansionary monetary policy, Fischer states in the quarterly Inflation Report published yesterday, regarding the last quarter of 2009.

The government-set range of stable prices is 1% to 3%. Bringing inflation from its pace of about 3.9% in 2009 back to "normality" will be a phased process, the central bank says. The pace will depend on the inflation environment, the robustness of economic recovery not only in Israel but around the world, the pace at which other central banks raise their interest rates - and the exchange rate of the shekel against a basket of foreign currencies.

The Bank of Israel points out that the state of the global economy remains extremely fragile. But with that uncertainty factor duly noted, the central bank says it aims for inflation in a year's time to run at 2.5%, in annualized terms.

The central bank also notes that Israel's gross domestic product grew by more than 4% in the last quarter of 2009, in annualized terms, and that unemployment seems to be trending downward.