BOI leaves rate at 5.5%
Annual inflation remains within the central bank's 1% to 3% target.
By TAL BARAK, JONATHAN FERZIGER
August 29, 2006 07:40
1 minute read.
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The Bank of Israel kept its benchmark interest rate unchanged after raising it last month by a quarter-point because of concern fighting in Lebanon would hurt the shekel and accelerate inflation.
The bank maintained the rate it charges commercial lenders for borrowing money at 5.5 percent for September. All seven economists surveyed by Bloomberg had forecast that the central bank would keep the same rate.
Bank of Israel Governor Stanley Fischer said he expects economic recovery from the 33-day conflict with Hizbullah to be slow.
"Part of the losses caused to manufacturing and the commerce and services industry could yet be set off later this year which could minimize the damage to economic growth, rendering it only temporary with most of it impacting in the third quarter," Fischer said in the statement that accompanied the decision.
Annual inflation slid to 2.4% in July, the lowest since December, and remains within the central bank's 1% to 3% target.
"There was no reason to increase the interest rate because all the indicators are perfectly fine," said Vered Dar, chief economist at Psagot Ofek Investment House Ltd. "Even the costs of the war are not relevant enough to justify a raise."
Direct costs of the war were estimated at $1 billion, Yossi Bachar, director general at the Israeli Ministry of Finance, said on August 17.
Fischer said he expects war costs to reduce gross domestic product to 4.5%, down from an earlier forecast of 5.5%. Israel's economy grew in the first quarter at a faster-than-expected 6.6% annualized rate, according to the Central Bureau of Statistics.