The Bank of Israel on Monday kept the interest rate for March unchanged at 2.5%, in line with analysts' expectations.
The Bank of Israel cited the rise in 12-month inflation expectations by 0.2 percentage points in the past month to 2.5%, although inflation over the previous twelve months continues to settle firmly within the inflation target range.
The Bank of Israel also noted that the latest economic indicators show that the rate of economic growth continued to slow in the fourth quarter of 2011 and in January 2012, although some monthly indicators (such as the manufacturing production index, trade and services revenue index, and the index of imports of production inputs) point to a slight improvement in recent months. With that, indicators of real economic activity are consistent with the Bank of Israel growth forecast of 2.8% in 2012.
Finally, the Bank of Israel points to a mixed picture on global economic activity, with relatively encouraging data in the US, indications of recession in Japan and Europe, and mixed data on emerging markets. Interest rates in major economies are low, and markets are not pricing in an increase in the interest rate this year by any of the central banks of large advanced economies. The US Federal Reserve Board has declared that the federal funds rate will remain at its near-zero level at least until mid-2014, while the Bank of England and the European Central Bank continue efforts to increase liquidity.
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