Bank of Israel keeps interest rate unchanged

In keeping the rate at 1.75%, the Bank of Israel cited the low inflationary environment, decline in exports, and slowdown in demand.

The Bank of Israel Monetary Committee today kept the interest rate for February 2013 unchanged at 1.75%, after unexpectedly cutting the interest rate for January by 25 basis points.

All 21 analysts polled by "Bloomberg" predicted that the Bank of Israel would keep the interest rate unchanged.

The Bank of Israel said that the main reasons for keeping the interest rate unchanged were the inflationary environment, which reflects the slowdown in domestic demand; the slowdown in demand growth, declining exports, and stability in GDP growth, as indicated by economic indicators; the continued rise in home prices; the decrease in investment houses' assessment of risks to the global economy for the first time in a long while; and the fact that most major central banks have not changed their monetary policy, and interest rates in major economies remain low.

The Bank of Israel cites World Bank assessments of a drop in commodities prices over the next two years, which will support a continued low inflation environment in Israel. The Bank of Israel's GDP forecast for 2013 growth remains at 3%, and it said that monthly indicators do not point toward further deterioration in activity, but to a slight improvement in expectations of economic activity.

As for home prices, the Bank of Israel notes that prices rose by 5.7% in the 12 months through November, up from the 3.7% in the 12 months through October. It expects to see an impact on home prices from the loan-to-value ratio limitations, which came into effect at the beginning of November, beginning in January.

On the global front, the Bank of Israel said that the risk of a deterioration in the debt crisis in Europe has declined, and the uncertainty regarding the fiscal cliff issue has mostly receded. Macro data published this month in the US and China continued to be positive, although data published in Europe indicate that activity has still not reached a turning point and the recession there continues.

Published by Globes [online], Israel business news - www.globes-online.com - on January 28, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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