Bank of Israel keeps interest rate unchanged for July

Karnit Flug  picture: Eyal Yitzhar
Karnit Flug picture: Eyal Yitzhar

The Bank of Israel says the inflation environment is beginning to converge to within the target range.

The Bank of Israel Monetary Committee decided at its meeting today to keep the central bank's interest rate at 0.1%. The decision was widely anticipated.

In its statement, the Monetary Committee listed as the reasons for its decision: "The inflation environment is beginning to converge to within the target range; in March-May the CPI increased by a rate consistent with the inflation target. Short-term inflation expectations from various sources are around the lower bound of the target range, and the Research Department forecasts an inflation rate of 1.6 percent over the coming year. Expectations for medium and longer terms remain entrenched near the midpoint of the target range.

"First quarter GDP growth data was revised downward, against the background of a sharp downward revision in export growth. Indicators of real economic activity that became available this month, including the Composite State of the Economy Index, tax revenue data, labor market data, and preliminary data from the second quarter Companies Survey, support the assessment that growth, led by private consumption, continues at a moderate rate.

"Forecasts of global growth were reduced against the background of a transitory slowdown in US growth, and a slowdown in emerging markets. Moderate positive momentum continues in Europe, but the risk deriving from developments in Greece increased. In the US, the federal funds rate is expected to be increased in 2015, but the pace of the increases is expected to be moderate, and in other countries monetary expansion continues.

"The shekel strengthened by 1 percent in terms of the nominal effective exchange rate this month, and has appreciated by 4.7 percent for the year to date. The appreciation and the expected moderation in growth of world trade weigh on the growth of exports and of the tradable sector.

"Robust activity in the housing market, both on the supply side and on the demand side, was reflected in high volumes of transactions, building starts and completions, and a very elevated level of new mortgages taken out. March-April data indicated that the increase in home prices continues, but at a more moderate pace than before."

The statement adds, "The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets. The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market."

Published by Globes [online], Israel business news - www.globes-online.com - on June 22, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Karnit Flug  picture: Eyal Yitzhar
Karnit Flug picture: Eyal Yitzhar
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