The Bank of Israel has left the interest rate for September unchanged at 2.25%, in line with expectations. This is the second consecutive month that the interest rate has been left unchanged by the Bank of Israel after it cut the interest rate by 25 basis points for July. 16 of 19 analysts polled by "Bloomberg" had predicted that the Bank of Israel would keep the interest rate for September 2012 unchanged.
In justifying its decision the Bank of Israel said that, "This is consistent with the Bank of Israel's interest rate policy, which is intended to entrench the inflation rate within the price stability target of 13% a year over the next twelve months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel, the global economy, monetary policies of major central banks, and developments in the exchange rate of the shekel."
The Bank of Israel added that it is concerned about a recent rise in inflation, "Inflation over the previous 12 months is 1.4%, and on a seasonally adjusted basis, inflation since the beginning of the year is below the lower bound of the target range. However, inflation expectations which had declined in recent months, increased markedly this month as a result of an increase in prices of commodities and energy, and changes in indirect taxes."
On GDP growth the Bank of Israel said, "Indicators which became available this month support the assessment that the economy is growing at a rate similar to that of recent quarters, of around 3%. With that, data from surveys of economic activity indicate expectations of a slowdown in the rate of growth. Likewise, a continued trend of moderation in world trade is liable to lead to a decline in the economy's growth rate. At the same time, the recent weakness of the shekel is expected to aid the economy in dealing with the negative developments abroad which are expressed in reduced demand for Israeli exports."
The Bank of Israel said that it is also closely monitoring home prices, "Over the past 12 months, there has been a moderation, and even a halt, in the increase in home prices. With that, there was an increase this month in new mortgages granted, though it is too early to tell if there has been a change in the trend."
The Bank of Israel also cited concerns about global uncertainty. "The level of economic risks from around the world, due to the developments in Europe, remains high- leading to concerns of negative effects on the domestic economy. Second quarter macro figures which became available this month indicate continued deterioration in the state of the economies in the euro zone, the UK, Japan, and emerging markets. In contrast, there was a slight improvement in US economic activity this month."
Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2012
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