The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for December unchanged at 0.1%. The rate was cut by 25 basis points to its historic low in March, and last month Flug said that she does not expect the rate to change in the near future.
In citing its reasons for keeping the interest rate unchanged the Bank of Israel said, "The inflation environment in the short term is affected by factors of a one-off nature. Short-term inflation expectations remained low this month, and are affected by these factors and by the recent renewed decline in commodity prices. Medium-term (forward) expectations declined slightly after increasing in the previous month, and long-term (forward) expectations remained entrenched near the midpoint of the target range.
Discussing growth the Bank of Israel said, "The first estimate of third quarter growth data indicates a return to the rate of growth that prevailed in the past two years, without compensation for the near-zero growth in the second quarter. The rate of growth in nondurable goods consumption was maintained, there was an acceleration in public consumption, and after a prolonged period of time there was a recovery in exports. However, the most recent data indicate that the improvement in exports may have been transitory. The picture presented by labor market data continues to be positive. To date, the effect of the wave of violence on economic activity is moderate."
The Bank of Israel then spoke of global economic weakness, "This month, the OECD again reduced its global growth forecast, against the background of the weakness in world trade and the slowdown in developing economies. Global financial market expectations are that the US Federal Reserve will begin to increase the federal funds rate soon, but that in Europe and other major economies, monetary accommodation will be enhanced."
On the shekel, the Bank of Israel added, "From the monetary policy discussion on October 25, 2015, through November 20, 2015, the shekel strengthened by about 1.6% in terms of the nominal effective exchange rate, as the shekel was stable against the dollar and appreciated relatively sharply against the euro. Since the beginning of the year there has been an effective appreciation of 7.5%. The development of the exchange rate since the beginning of year is weighing on growth of exports and the tradable sector, and is delaying the return of inflation to within the target range.
Commenting on the real estate market, the Bank of Israel said, "The volume of new mortgages taken out remains elevated, as do new home sales and the stock of homes available for sale. Home prices have increased by 6.6% over the past 12 months. However, prices have been stable over the past two months."
Published by Globes [online], Israel business news - www.globes-online.com - on November 23, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015