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

27.6.2005
 
The Bank of Israel’s Interest Rate for July 2005 Remains Unchanged
 
The Bank of Israel today announced that in the context of its monetary program for July 2005 the interest rate will remain unchanged at 3.5 percent.
This decision is based on the assessment that in the current circumstances 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 conclusion is based on data derived from the capital market, the predictions of various economic forecasters, and the economic models and analysis of the Bank of Israel.
The recent rise in the NIS/$ exchange rate, against the background of the changes in foreign currency markets around the world, has occurred so far alongside continued financial stability, and has not resulted in revised assessments regarding future inflation vis-a-vis the target. This is the backdrop against which interest policy is under constant review in the light of current developments, with the intention of achieving the government's inflation target.
 
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
Date Change Interest ratea Change Interest rate
2003 December   5.2   1.0 4.2 3.0
2004 December –1.3 3.9 1.25 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 0.5 2.1
June 0.0 3.5 0.0d 3.0d 0.5d 1.9
July 0.0 3.5        
 
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, was about 29 basis points in June, similar to its level a month earlier.
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, and Yields in the Capital Market
(monthly average, percent)
Date Bank of Israel rate of Interest Yield on 12 month Treasury bills Nominal yield on CPI- indexed 10- year government bonds Real Yield on unindexed 10- year government bonds
Headline rate (simple)a Effectiveb Realc
2003 December 5.2 5.4 4.6 4.9 4.1 7.0
2004 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 2.0 4.0 3.6 6.2
June 3.5 3.7 2.0 3.9 3.6 6.2
July 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, June 2005- and Israel- July 2005
(Percent)
Advanced countries
Japan Switzerland US Norway ECB Canada Sweden Denmark UK Australia New Zealand
0 0.75 3 1.75 2 2.5 1.5 2.15 4.75 5.5 6.75
Emerging markets
  Thailand Taiwan Chile Korea Israel Mexico South Africa Brazil Turkey  
  2.5 1.875 3 3.25 3.5 9.6 7 19.75 14.25  
Other developing countries
  Czech Republic Poland Hungary  
1.75 5.5 7