The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for September unchanged at 0.1%. The interest rate has been unchanged since it was cut to a historic low of 0.1% in March 2015.
The Bank of Israel cited the following considerations behind the decision. "The Consumer Price Index (CPI) for July increased more than expected, following three successive positive CPI rates of change. Short-term inflation expectations remained low this month, and are still below the lower bound of the inflation target range. Medium and long-term expectations remain anchored within the target range."
On the Israeli economy, the Bank of Israel said, "In the first half of 2016, the economy grew by 2.9%, similar to the average growth rate of recent years. In the second quarter, based on the first estimate of National Accounts data, growth was higher than expected, at 3.7%. However, it is too early to establish if this rate, which is higher than the recent years’ average, will be sustained.
On the global economy, the Bank of Israel observed, "The global economy continues to grow at a moderate rate. Second quarter growth data for major economies were low, and weakness continues in world trade. Monetary policy is very accommodative in Europe, Japan, and the UK, and additional central banks reduced interest rates this month. In the US, there was an increase in the probability that the federal funds rate will be raised this year, though the uncertainly surrounding it is still high.
The Bank of Israel noted that the shekel continues to strengthen, "From the monetary policy discussion on July 24, 2016, through August 26, 2016, the shekel strengthened by 2.2% against the dollar. In terms of the effective exchange rate, the shekel appreciated by 1.1%, and has appreciated by 5.1% over the past 12 months. The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector."
Finally on home prices, the Bank of Israel said, "Although the most recent observation indicated a decline in prices, the rate of increase in home prices remains elevated, and the levels of transactions and mortgage volumes remain high."
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2016
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