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The Bank of Israel's "headline" rate of interest is the rate of interest announced by the Governor at the end of every liquidity month.
These announcements have been made since the end of 1993, and provide the commercial banks with a benchmark for their
rates on local-currency unindexed deposits and credit. This rate also affects the banks'
prime rates; in the last few years prime interest has been about
one and a half percentage points higher than the "headline" rate.
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Until January 1998, the "headline" rate of interest was a major
element in the determination of the rate of interest on the monetary
loans auctions held by the Bank of Israel for the commercial banks.
Since then the "headline" rate of interest has been a major factor in
determining the rate of interest in the auctions for banks' deposits in
the Bank of Israel.
Prior to the system of announcing the rate of interest, the Bank of Israel
used to indicate the change it wanted in the rate of interest by changing
the brackets of interest on the monetary loans by quota.
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The Bank of Israel's rate of interest is the rate which the Bank
uses in its publications as one of the indicators reflecting its policy.
Since January 1998 the Bank of Israel interest rate is in effect the
interbank rate. From 1987 to January 1998 this was the actual weighted
interest on the monetary loan auctions (for a week, a month, and a day)
which the Bank made available to the banks.
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The interbank rate of interest is the rate determined in local-currency
transactions between commercial banks. This rate of interest was very
close to that on monetary loan auctions. As these loans were discontinued
in January 1998, the interbank rate of interest in effect serves as the Bank
of Israel rate of interest.
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The rate of interest on banks' deposits in the Bank of Israel is
the weighted interest determined in the auctions for deposits for
different periods, which have been in operation since June 1996.
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