Choosing to continue to try and rein in inflation, the Bank of Israel left interest rates unchanged for February at 4.25%.

According to Marketwatch, the Bank of Israel’s target inflation rate is 1% to 3%, while the country’s consumer-price index rose 3.4% for 2007. The CPI added 0.6% in December.

Weaker growth prospects in the United States also may help restrain inflation in Israel, by reducing Israel’s exports and domestic demand and by moderating the rise in prices of imports, including energy and food, according to the central bank, reported the same Marketwatch article.

The dollar continues its downward slide versus the shekel and has dropped 5% more since the last time the Bank met in late December. We’ll see the strong shekel start to really hurt earnings for those Israeli companies listed on US exchanges that do R&D in Israel. We’re hearing this already from CEOs and investors should keep an eye out for this trend during earnings season.

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