The Bank of Israel Monetary Committee has left the interest rate unchanged at a historic low of 0.1% for the 26th consecutive month, as expected.
In citing the reasons for its decision, the Bank of Israel observed that the annual inflation rate and 1-year inflation expectations increased but remain below the annual target range of 1%-3%. The Bank of Israel added, "The increase in nominal wages and strong economic activity will contribute to an increase in the inflation rate, while the appreciation that has occurred in the shekel, the increased competition in the economy and measures adopted by the government are expected to delay the return of inflation to the target range."
Despite disappointing growth of 1.4% at an annualized rate in the first quarter, the Bank of Israel remained sanguine, "National Accounts data for the first quarter (net of the volatility in vehicle imports) and indicators of second quarter activity show that the economy continues to grow at a solid pace, with a decline in private consumption’s contribution to growth and an increase in the contribution of exports and investment. The labor market continues to convey a very positive picture and is near full employment.
On the world economy, the Bank of Israel said, "Global activity and world trade continue to improve gradually, and according to forecasts, the improvement is expected to continue. The political risk in Europe declined significantly. The interest rate in the US is expected to be increased in June, while in Europe and Japan the accommodative policy continues."
The Bank of Israel added, "In recent weeks, the shekel weakened against the euro and strengthened against the dollar. The effective exchange rate remains stable at an appreciated level. Housing market indicators continue to point to a cooling of the market, and stability in home prices is apparent over the past few months."
Published by Globes [online], Israel business news - www.globes-online.com - on May 29, 2017
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