Bank of Israel governor David Klein left key lending rates unchanged at 3.8% for February, one month after the dramatic 2% cut included in the comprehensive economic plan that included promised cuts in the 2002 budget.
The continued low interest rate was possible, despite the recent strength of the dollar, due to inflation expectations of 2.4%, well inside the government's inflation target of 2-3%. Klein has stated in the endless interviews he granted since cutting interest rates, that Bank of Israel has only one goal and that is price stability. "We do not have an exchange rate target," he explained.
Most economist believe Klein will be forced to raise interest rates in the coming months by an increment of 0.4%. Klein will apparently decide on the timing of the rate hike after announcement of the January Consumer Price Index. Many concerns estimate that index will rise by 0.7-1%, mostly due to the dollar's influence on prices.