The Bank of Israel's interest rate for February 2006 up by 25 basis points to 4.75 percent

23.1.2006
 
The Bank of Israel’s interest rate for February 2006 up by 25 basis points to 4.75 percent
 
The interest rate for February 2006 will rise by 25 basis points to 4.75 percent. This increase is required to continue to support price stability within the limits of the inflation target range set by the government, defined as between one percent and three percent inflation a year.
The decision to raise the interest rate at this time was based on the expectation that the rise in interest rates abroad would continue, and in particular in the US, and that the contraction of the interest-rate differential between the sheqel and the dollar would affect the exchange rate and hence inflation. The current rise in the interest rate will strengthen the resilience of the economy, especially in the light of heightened geopolitical uncertainty, and against the background of the continued relatively rapid growth that is expected to lead to the closure of the output gap and thus to upward pressure on prices.
Expectations of inflation one year forward are consistent with the target range, but these are based on market assessments that the interest rate will rise.
The Bank of Israel will continue to monitor economic developments closely, with the intention of achieving the government's inflation target. The Bank will continue to support the attainment of the range of objectives of economic policy, particularly in the areas of encouraging employment and growth, and will strive to maintain the stability of the financial system. In this context it should be emphasized that fiscal discipline constitutes an important element in the continued maintenance of economic stability.