The Bank of Israel's Monetary program for September 1999

August 23, 1999
Monetary program for September 1999

The Bank of Israel announced its monetary program for September 1999, according to which the Bank’s interest rate remains unchanged, after reductions totaling 2 percentage points since the beginning of the year.

The Bank of Israel clarified that the decision not to change the rate of interest this month was the outcome of the need to continue monitoring inflation developments. Inflationary risks currently present are expressed, among other things, by the fact that inflation expectations for a twelve-month horizon and beyond, as reflected by several indices, are higher than 4 percent. It is also important that the relatively high rate of increase of the money supply should in the long run be consistent with the attainment of the inflation targets. The Bank of Israel also notes that there are indications of upward pressures on prices in international commodities markets, and that international financial markets are very sensitive.

The Bank noted that a situation must be avoided in which one-off price rises- which may result from fluctuations in the exchange rate of the NIS, for example-are translated into a deviation from the inflation environment. The policy goal is to ensure that the rate of inflation should be consistent with the target of 3-4 percent per year set by the government for 2000-2001, and thereby to contribute to sustainable growth. The Bank of Israel explained that determining a long-term framework for the budget and inflation targets and fully implementing them serve to buttress economic stability and create the conditions essential for sustained growth. Adopting and carrying out economic reforms and fixing a budget composition which is growth-oriented will in the long run act to improve efficiency and competition and create an infrastructure for continued expansion of business-sector activity and for reduced unemployment.