The Bank of Israel Monetary Committee, headed by Governor Karnit Flug, has kept the interest rate for June unchanged at 0.1%, as expected. 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 rate unchanged, the Bank of Israel said, "The inflation environment remains low, with diverse developments this month: the CPI for April increased, but by a lower rate than expected; expectations for various terms moved in different directions, though medium-term and long-term expectations continue to be anchored within the target range."
On Israel's disappointingly low growth figures the Bank of Israel said, "The first estimate of National Accounts data indicates a worrying contraction in exports, after a prolonged virtual standstill, while private consumption, supported by the low interest rate and wage increases in the economy, continues to drive growth. In contrast, the picture conveyed by labor market data continues to be positive, and is reflected in a low level of unemployment, a high level of employment, wage increases, and a high job vacancy rate.
On the world economy, the Bank of Israel added, "In global economic activity, weakness remains focused on emerging markets, and in the first quarter on the US and UK as well. The slowdown in the growth of world trade continues. The recovery in Europe remains fragile. Major central banks continued monetary accommodation, but did not enhance it, and the markets’ expected timing of an increase in the US federal funds rate was brought forward, after having been deferred in previous months.
Turning to the shekel, the Bank of Israel said, "From the monetary policy discussion on March 27, 2016, through April 19, 2016, the shekel weakened by 3% against the US dollar and by 1.6% in terms of the nominal effective exchange rate. Over the past 12 months there has been an appreciation of 3.3% in terms of the nominal effective exchange rate, and the exchange rate level continues to weigh on growth of exports and the tradable sector.
Finally on home prices the Bank of Israel concluded, "The rate of increase in home prices moderated slightly in recent months but remains high. The volume of new mortgages taken out also remains elevated, despite an increase in mortgage interest rates in recent months."
Published by Globes [online], Israel business news - www.globes-online.com - on May 23, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016