The Bank of Israel today published the protocols of its recent interest rate decision, in which its monetary committee decided to leave the interest rate for January 2016 unchanged at 0.1%. The decision was unanimous.
In its discussions of the economy, the committee members agreed that the economy is still growing at a moderate pace. They noted that exports are still weak: exports grew in the third quarter, but this followed two quarters of decline, and figures for October and November show no real improvement.
The committee predicted that as long as world trade continues to stagnate, it would continue to drag down exports. On the other hand, the committee emphasized that growth in private consumption was high, thereby supporting further moderate growth. The committee believes that the labor market is still solid, despite a slight dip in employment figures for the main working age groups in recent months. This strength is reflected in a high level of employment, higher wages, and a high rate of available jobs. The committee emphasized that so far, it appears that the current rate of violence is having only a slight effect on economic activity.
Commenting on the global environment, the committee members said that the global growth rate and inflation environment remain moderate - some improvement was recorded in the developed markets, while the slowdown in the awakening markets is continuing. The committee noted that after the US Federal Reserve Board raised its interest rate in December, the global financial markets expected the process of leaving the former expansive monetary policy to continue. According to the market forecast, the probability that the Federal Reserve will continue gradually raising the interest rate in 2016 is high, while in Europe and other leading markets, monetary expansion will accelerate.
In the housing market, the committee stated that the annual rate of price rises remains high, with the increase in housing prices resuming in the past month. At the same time, the fall in the rate of rent increases continue. "A high level of activity, combined with a larger proportion of housing units being initiated by the public sector, compared with the private sector, is likely to indicate an increase in the supply of housing services. The committee members believe that this is likely to slow the pace of housing price increases. The public is still taking a high rate of new mortgages, and the inherent risk in this market continues to be high," the committee reported.
To sum up, the committee agreed that the current interest rate matched the low inflation environment, the ongoing slowdown in the global economy, and the low level of exports. The committee supported a restoration of inflation to the targets. The committee members believe that in view of the forecasts for world trade made during its discussion, the risks to growth in Israel, and the time it will take before inflation returns to its target range, monetary policy in Israel is likely to remain expansive for some time.
Published by Globes [online], Israel business news - www.globes-online.com - on January 12, 2016
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