The Bank of Israel's Monetary program for July 1999

June 28,1999
Monetary program for July 1999


The Bank of Israel announced its monetary program for July 1999, according to which the Bank’s interest rate remains unchanged.

The Bank of Israel explained that the decision to keep the nominal interest rate at its current level derives from the need to ensure that the long-term inflation rate is consistent with the 4 percent target set by the government for 1999. The particularly low consumer price indices at the beginning of the year, following the interest-rate hike in November 1998, partly reflect the nonrecurring correction of the especially high indices in the last few months of 1998 as a result of the shocks on world financial markets at that time. These developments regarding the price indices increase the chance of attaining a low rate of inflation in 1999; however, the various forecasts of inflation beyond 1999 still indicate a rate of price increases that is higher than 4 percent, indicating that dangers still exist in this sphere. These trends illustrate the need to continue closely monitoring the inflation environment in order to ensure further adherence to a policy aimed at preserving economic stability. This is essential for attaining sustainable growth, in the context of the need for Israel’s successful economic integration within the global economy.

The Bank of Israel pointed out that the main challenge confronting economic policy continues to be the revival of stable and sustainable growth. This will also provide the right solution to the problem of unemployment. In order to achieve this, the composition of the government’s expenditure must accord priority to investment in the physical infrastructure, human capital, and R&D, as well as to the reduction of the tax burden, while adhering to the declining path of the budget deficit as a proportion of GDP. This must go hand in hand with a far-reaching and determined policy of structural reforms.