The Bank of Israel Monetary Committee headed by Governor Dr. Karnit Flug has kept the interest rate for June unchanged at 0.1%. The Bank of Israel lowered the rate by 15 basis points to its historic low of 0.1% for March.
Most analysts had expected the rate to remain unchanged but five analysts had predicted that the Bank of Israel would cut the interest rate to zero.
In citing its reasons for keeping the rate unchanged the Bank of Israel spoke first about inflation, "The CPI for March increased by 0.3%, led by fuel prices and by the housing component. The rate of inflation as measured over the past 12 months was negative 1%. Short-term inflation expectations from various sources are near the lower bound of the inflation target range, or slightly below it. Longer-term expectations remained stable around the midpoint of the target range."
Regarding the economy the Bank of Israel added, "Indicators of economic activity for the first quarter point to the economy continuing to grow at the moderate rate of the past two years. Companies Survey data support this assessment. The Composite State of the Economy Index increased by 0.4% in March, and tax revenues increased. Net of extraordinary effects, goods exports increased by 3.3% in March, and declined by 0.9% in the first quarter, in dollar terms.
On World economic trends the Bank of Israel said, "The IMF revised its growth forecasts for Europe and Japan upward, and lowered its projections for US growth and world trade volume. There are signs of recovery in current eurozone data, and some of the disappointing data in the US reflect one-off factors. Market expectations indicate that the date for liftoff of the federal funds rate has been pushed off.
On the shekel the bank said, "From the monetary policy discussion on March 22, 2015, through April 24, 2015, the shekel strengthened by 3% against the dollar, and appreciated by 1.7% in terms of the nominal effective exchange rate. For the year to date, there has been an effective appreciation of 3.7% in the shekel, against the background of accommodative monetary policy in several major economies, among other reasons. A decline in the projected rate of world trade growth and continued appreciation are liable to weigh on growth of exports and of the tradable sector."
Finally on house prices the Bank of Israel said, "The increase in home prices continues, and new mortgage volume remains elevated. The number of transactions moderated slightly in February, among investors as well."
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2015
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