Israel parliament gives initial nod to cenbank reforms

JERUSALEM Mon Feb 8, 2010 2:34pm EST

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JERUSALEM Feb 8 (Reuters) - Israel's parliament on Monday gave preliminary approval to a long-awaited proposal that would revamp the framework for policymaking at the Bank of Israel.

Israeli media have reported that Bank of Israel Governor Stanley Fischer's decision to stay for a second five-year term hinges on passage of the bill, which would enable the central bank to act like its U.S. and European peers.

Fischer's current term ends in May.

Israeli Finance Minister Yuval Steinitz told lawmakers in a speech ahead of the vote that the reforms would "strengthen the independence of the Bank of Israel and the transparency of its decision-making process to the public."

Steinitz said he hoped the additional votes required before the measure can become law "will be completed quickly for the sake of Israel's economy" by improving the basis for continued cooperation between the finance ministry and the central bank.

Under the proposed bill, monetary policy decisions would be made by a six-member board headed by the governor. The deputy governor and another central bank official, appointed by the governor, would also be on the board.

Three other external members would be appointed by the government, two of whom would be nominated by the finance ministry.

They must be Israeli citizens, have a Masters degree or PhD and have at least five years working in the finance, monetary or economic sectors.

At present, the governor makes interest rate decisions alone after discussions and a non-binding vote by central bank department heads.

The Bank of Israel's main goal would still be price stability, but monetary policy decisions would target other objectives such as supporting economic growth and employment.

In its initial vote, only 24 lawmakers in the 120-seat parliament voted -- 22 of them in favour of the new law that will govern the central bank. Two others voted against. It still needs to pass two more rounds in parliament before becoming law.

The bill next heads to parliament's finance committee for any changes.

Debate on a law to replace the current one that has been in place since 1954 has been ongoing for 12 years. Last November, the law was passed by a panel of ministers.

(Reporting by Steven Scheer; Editing by Dan Grebler)

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