Bank of Israel to Reduce Interest Rates
(Communicated by Bank of Israel Spokesman)

Jerusalem, January 25, 2000

The Bank of Israel announced yesterday evening (Monday) 24.1.2000, its monetary policy for February 2000, according to which the Bank will lower its interest rates by 0.4%. The reduction follows the success in achieving the government’s inflation and other targets without placing these achievement at risk. The Bank of Israel reiterates that the achievement in reaching the inflation target and the striving for price stability are vital underpinnings for sustained economic growth.

Sticking to the government’s inflation target for fiscal years 2000-2001 – 3-4% annually – has allowed the recent gradual reduction in interest rates. The decision reflects an interest rate policy that takes into consideration risks of inflation derived from changes in the public’s financial assets and liabilities and the need to bear in mind the upward trend in interest rates in the world. Also, a sustained growth in the weight of unlinked Shekel assets and stocks reflects increased public trust in the policy to maintain low inflation in accordance with government policies and targets.

The Bank’s decision regarding interest rates will be determined on the basis of a one to two year horizon and the government’s inflation target for the next two years. The Bank’s estimate will be based on analysis of inflation forecasts for periods of one year and up, based on indicators such as a rise the circulating medium, changes in interest rates inflationary expectations, price trends abroad, fiscal policy and real productivity.

The Bank notes that maintaining inflation within set targets also depends on gradually adapting decision making procedures on wage agreements, unlinking prices, accountancy regulations, the composition of public assets etc. to a low inflationary environment. In this context, it is important that wage agreements are in accordance with government’s budget for 2000 and its inflation targets. And its macro-economic strategy to maintain economic and financial stability and integrate with the global economy.