The Bank of Israel announced this evening that it was leaving its key lending rate unchanged for April, at 0.75%. Last month, the Monetary Committee, headed by Governor Dr. Karnit Flug, sprung a surprise 0.25% reduction in the interest rate. The current decision is in line with market expectations.
In its announcement, the bank cited as one of the reasons for today's decision the decline in inflation and in real economic activity. "The inflation environment is located within the bottom portion of the target range. Inflation expectations for one year ahead are within the target range, below the midpoint of the inflation target… Data which became available this month continue to indicate moderate economic growth, and some recovery in the growth rate is seen in the first quarter of 2014. In particular, a recovery in private consumption is apparent, as well as some increase in exports, which is focused for now on high tech and business services industries. Other manufacturing exports remain at a virtual standstill."
The bank notes that "In the past month, the shekel appreciated by 1% in terms of the nominal effective exchange rate; since the beginning of 2013, there has been a cumulative appreciation of 8.2%."
The bank also comments on the housing market, saying, "The pace of home price appreciation moderated this month, and over the past year they have increased by 6.3%. There is a continued high volume of mortgages taken out. With that, the improvement in risk characteristics of the new mortgages continues. The housing market policy steps being considered are likely to lead to volatility in volumes of activity and in prices in the market in coming months."
The Bank of Israel Research Department has revised its growth forecast downward. According to the revised forecast, GDP will grow 3.1% in 2014, which compares with 3.3% in the previous forecast. Discounting the effect of gas production, the central bank sees growth this year of 2.8%, down from 2.9% in the previous forecast. For 2015, the bank forecasts growth of 3%. Gas production is expected to stabilize, and therefore to have no impact of growth in that year.
Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013