Bank of Israel leaves interest rate at record low

The bank is buying foreign currency and bonds each day in order to help the economy deal with the recession
 
The Bank of Israel decided last Monday to hold its benchmark interest rate at a record low of 0.5%, unchanged for a second straight month, saying it would help strengthen the economy's ability to cope with the negative effects of the global economic crisis.
 
The Bank added that steps such as buying foreign currency and bonds each day were helping the economy deal with the recession.
 
Inflation slipped to an annual rate of 3.1% in April from a peak of 5.5% last October, enabling the central bank to lower its base rate by a total of 3.75 percentage points to help ease the effects of the global crisis.
 
It had been expected to drop below 1% this year but the central bank believes it will only reach 2%, the midpoint of an official 1-3% annual target in the next 12 months. While the negative trend in economic activity may be moderating, renewed growth is expected only toward the end of the year, the Bank of Israel noted in its decision.
 
The government has already raised or is set to raise some taxes to try to keep the budget deficit under control. Analysts believe that the higher taxes, including a rise in the value added tax (VAT) by one point from 15.5% to 16.5%, will boost inflation levels by around 1% this year.