The Bank of Israel's Interest Rate for June 2005 Remains Unchanged

23.5.2005
 
The Bank of Israel’s Interest Rate for June 2005 Remains Unchanged
 
The Bank of Israel today announced that in the context of its monetary program for June 2005 the interest rate will remain unchanged at 3.5 percent.
The present level of nominal short-term interest is consistent with an inflation rate close to the midpoint of the government's price-stability target of between 1 percent and 3 percent in annual terms, over time. This is the conclusion derived from the range of indicators regarding expected inflation over the next one and two years: inflation expectations calculated from the capital market, the predictions of various economic forecasters, and the economic models used by the Bank of Israel.
These assessments of expected inflation are supported by several indicators pointing to continued stability in the capital and foreign-currency markets: exchange–rate stability and expectations in the financial markets that it will persist; the continued decline of yields in the government-bond market; and Israel's very low and stable risk premium. Concurrently the dollar interest rate is rising, and the differential between it and the NIS interest rate is contracting.
 
Table 1: Interest Rates in Israel and the US
(Percent)
  Central banks’ interest rates Yield spread between US and Israel 10-year govt. bondsc
  Israel US Differential between central banks’ interest ratesb
End of year Change Interest ratea Change Interest rate
1998   13.5   4.75 8.75
1999 –2.3 11.2 0.75 5.5 5.7 –3.05
2000 –3.0 8.2 1.0 6.5 1.7 –4.0
2001 –2.4 5.8 –4.75 1.75 4.05 1.6
2002 3.3 9.1 –0.5 1.25 7.85 6.8
2003 –3.9 5.2 –0.25 1.0 4.2 3.0
Monthly data            
2004 January –0.4 4.8 0.0 1.0 3.8 3.1
February –0.3 4.5 0.0 1.0 3.5 3.5
March –0.2 4.3 0.0 1.0 3.3 3.8
April –0.2 4.1 0.0 1.0 3.1 3.6
May 0.0 4.1 0.0 1.0 3.1 3.2
June 0.0 4.1 0.0 1.0 3.1 3.0
July 0.0 4.1 0.25 1.25 2.85 3.2
August 0.0 4.1 0.25 1.5 2.6 3.7
September 0.0 4.1 0.25 1.75 2.35 3.8
October 0.0 4.1 0.0 1.75 2.35 3.4
November 0.0 4.1 0.25 2.0 2.1 3.2
December –0.2 3.9 0.25 2.25 1.65 2.7
2005 January –0.2 3.7 0.0 2.25 1.45 2.6
February –0.2 3.5 0.0 2.25 1.25 2.6
March 0.0 3.5 0.25 2.50 1.0 2.0
April 0.0 3.5 0.25 2.75 0.75 2.3
May 0.0 3.5 0.25 3.0 0.50 2.1
June 0.0 3.5 0.25d 3.0d 0.5d  
 
a  The rate of interest set in the previous month’s monetary program for the month indicated in the table.
b  The risk premium, as measured by the 5-year credit-default-swap (CDS) market for May is 30 basis points, similar to its level at April
c  The yield spread between 10-year Shahar bonds and 10-year US government bonds.
d  The Open Market Committee of the US Federal Reserve is due to convene on 30 June 2005 for its regular review of interest-rate policy.
   
 
 
Table 2: The Bank of Israel Real Rate of Interest, the Nominal Yield on Treasury Bills and on Unindexed Government Bonds, and the Real Yield on CPI-Indexed Government Bonds
(monthly average, percent)
  Bank of Israel rate of Interest Yield on 12 month Treasury bills Real yield on CPI- indexed 10- year bonds Yield on unindexed 10- year bonds
Headline rate (simple)a Effectiveb Realc
2002 December 9.1 9.6 7.2 7.9 5.7 10.9
2003 December 5.2 5.4 4.6 4.9 4.1 7.0
2004 January 4.8 5.0 3.8 4.7 4.0 7.0
February 4.5 4.7 3.2 4.9 4.1 7.4
March 4.3 4.5 3.3 4.9 4.2 7.4
April 4.1 4.3 2.7 4.8 4.3 7.6
May 4.1 4.3 2.3 5.2 4.4 7.9
June 4.1 4.3 2.5 5.0 4.3 7.8
July 4.1 4.3 2.8 4.8 4.3 7.8
August 4.1 4.3 2.4 4.8 4.3 7.9
September 4.1 4.3 2.3 4.7 4.2 7.7
October 4.1 4.3 2.2 4.8 4.2 7.6
November 4.1 4.3 2.3 4.7 4.2 7.4
December 3.9 4.1 2.7 4.3 4.1 7.2
2005 January 3.7 3.9 2.3 4.2 4.0 6.9
February 3.5 3.7 1.6 4.2 3.8 6.7
March 3.5 3.7 1.5 4.1 3.7 6.6
April 3.5 3.7 1.6 4.1 3.8 6.6
May 3.5 3.7 1.9 4.1 3.6 6.3
June 3.5          
 
a Announced interest rate in simple annual terms (excluding compound interest).
b Calculated as the daily compound interest rate, based on the interbank rate (see explanation in BOI
  no. 2, p. 17).
c The real rate of interest is the effective rate of interest less inflation expectations derived from the capital market.
 
Table 3: Central-Bank Interest Rates in Several Countries, May 2005
(Percent)
Advanced countries Interest rate (percent)
Japan 0.00
Switzerland 0.75
US 3.00
Norway 1.75
ECB 2.00
Canada 2.50
Sweden 2.00
Denmark 2.15
UK 4.75
Australia 5.50
New Zealand 6.75
Emerging markets
Thailand 2.25
Taiwan 1.875
Chile 3.00
Korea 3.25
Israel1 3.50
Mexico 9.60
South Africa 7.00
Brazil 19.75
Turkey 14.50
Other developing countries
Czech Republic 1.75
Poland 5.50
Hungary 7.50
 
1Israel's interest rate relates to June 2005