The Bank of Israel kept the benchmark interest rate unchanged for third consecutive month

The Bank of Israel kept the benchmark interest rate unchanged for third consecutive month as the shekel appreciated and slowed the growth of housing prices.

Stanley Fischer, governor maintained the rate at 2 percent, the central bank based in Jerusalem and other expected to increase by a quarter point.

Near-zero interest rates in the U.S. and Europe have pushed the log entries to Israel and other countries where rates are higher, conducting foreign exchange earnings and exports to undermine. The shekel has strengthened about 6 percent against the dollar since August 2009, when Fischer began to increase the rate, even though the Central Bank purchased foreign currency to limit gains.

"Fischer held the type, due to the difference in rate of interest and concern that this could hurt exports," said Ayelet Nir, chief economist at Tel Aviv-based Israel Brokerage & Investments Ltd., by telephone. "Other factors include lower expectations of inflation and a slowdown in the increase in housing prices."

The bank said in its statement that the gap between the highest interest rates in countries like Israel and other developed countries "pose a serious challenge for policy makers."

The shekel strengthened 0.3 percent to 3.5803 per dollar as of 18:21 in Tel Aviv, little changed from before the announcement.

Fischer has raised the benchmark rate by 1.5 percentage points since last August. The Bank of Israel has been buying foreign currencies since March 2008, more than double the reserves of 68.3 billion U.S. dollars in late November.

Shekel strengthens

The central bank said his decision to leave rates unchanged was also due to a slowdown in the growth of housing prices.

Fischer said 22 December that there are "preliminary signs" that the expansion of housing prices is slowing, after the warning in November of the risk of a "bubble" that could destabilize the financial system. Inflation has been driven by increases in housing prices over the past two years, slowed last month to 2.3 percent, the first time it has fallen since July.

To contain prices, the bank has tightened the requirements for mortgages, while the government has taken steps to release more land for development. The growth of housing rental costs slowed to 3.9 percent last month from 4.5 percent the previous month, the Central Bureau of Statistics said on 15 December.

Economic Growth

Economic growth slowed to an annualized rate of 3.8 percent in the third quarter, from 4.5 percent in the second quarter, exports fell by 9.6 percent. About 40 percent of gross domestic product of Israel is based on exports. The economy is expected to increase 3.5 percent next year compared to 4 percent this year, Bank Hapoalim Ltd. said last week.

Fischer, who has sole responsibility for setting interest rates, was appointed to a second term as governor in March. He is in the process of implementing a new law requiring the creation of a six-member Monetary Policy Committee to make decisions on rates.

The benchmark TA-25 stock has gained about 15 percent in the last 12 months, led by Avner Oil Exploration LP, a partner in the gas fields off the coast of Israel.