The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for November unchanged at 0.1%. The interest rate has been unchanged since it was cut to a historic low of 0.1% in March 2015.
In citing the reasons for keeping the interest rate unchanged the Bank of Israel said, "The CPI for September declined by 0.1%, a rate in accordance with expectations and that is in line with the seasonal path consistent with achieving the inflation target. Inflation as measured by the change in the CPI over the past 12 months remains negative, but the effects of the decline in energy components and of initiated price reductions are contracting. Short-term inflation expectations remained stable this month, below the lower bound of the inflation target range. Medium-term and long-term expectations remain anchored within the target range."
On Israel's economic performance the Bank of Israel said, "The picture of real economic activity remains positive, with second quarter growth driven by growth in all uses. Companies Survey data point to the assessment that growth in activity is expected to have continued in the third quarter as well. The picture conveyed by labor market data remains positive, with growth in employment and in wages; the Companies Survey indicates that in various industries, companies are reporting hiring constraints."
Regarding the global economy, the Bank of Israel remarked, "The global economy continues to grow at a slow pace. The IMF kept its global growth forecast unchanged, though the forecast for world trade growth was revised downward and is likely to be affected by political developments in some advanced economies. Central banks continue to conduct very accommodative monetary policy. The probability of a 0.25% point increase in the US federal funds rate by the end of the year is relatively high, though the pace of the expected interest rate increases afterward is expected to be slow
On the shekel the Bank said, " From the monetary policy discussion on September 25, 2016, through October 26, 2016, the shekel weakened by 2.2% against the dollar, and depreciated by 0.5% in terms of the nominal effective exchange rate. The shekel has appreciated by 3.4% over the past 12 months in terms of the nominal effective exchange rate. 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 commented, "Home prices continue to rise, and previous months’ indices were revised upward. Alongside this, the increase in the stock of unsold new homes continues. Monthly mortgage volume is stabilizing, with a continued increase in mortgage interest rates."
Published by Globes [online], Israel business news - www.globes-online.com - on October 27, 2016
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