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Reducing inflation is another major stated goal of the government.
By the year 2001, the government is aiming to decrease inflation
to Western European standards. Monetary policy, primarily
decided upon and implemented by the Bank of Israel, is one of
the main methods of checking inflation. Since the 1996 elections,
the Prime Minister's Office and the Bank of Israel have strived to
implement a monetary policy to dampen inflationary expectations
and pressures.
The central bank has maintained relatively high interest rates in
order to slow down borrowing by the non-government sector and
help reduce inflation. During the first half of 1996, the annual
inflation rate was between 15-16%. However, in the second half of
that year, following the establishment of the Netanyahu
government, inflation's rise was checked and fell to 10.6% by the
end of the year. In 1997, these policies brought inflation down to
7%. For the first five months of 1998, inflation is running at an
annual rate of between 4 - 5%, well below the rate predicted for
1998 by the Ministry of Finance and the Bank of Israel.
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