The Bank of Israel Monetary Committee headed by Governor Karnit Flug is keeping its lending rate for April and May at the historic low of 0.1%. The rate has been unchanged since March 2015.
Negative and negligible inflation has been the main reason that the rate has remained unchanged for so long. The Bank of Israel has previously predicted that it would raise the interest rate when inflation returns to the target range of between 1% and 3% in the second half of 2018. The Bank of Israel now expects to raise the interest rate in the fourth quarter of 2018.
The Bank of Israel said, "The inflation environment remains below the target, although there are continued indications of some increase in it. In February and March, the CPI increased by a rate slightly higher than forecast, but expectations and most forecasts for one year remain below the target, while expectations for the medium and long terms are anchored within the target range."
On economic growth the Bank of Israel was bullish, "According to indicators of economic activity, it may be assessed that in the first quarter, the economy continued to grow at a solid pace, perhaps even higher than the potential growth rate. Exports are increasing, driven by services exports. The labor market remains tight, and the downward trend in the unemployment rate continues. Wages are continuing to increase, though at a rate that is lower than in the past."
On the shekel, the Bank of Israel added, "The exchange rate has not changed significantly since the last interest rate decision. At the beginning of the period, the shekel strengthened by about 2% in terms of the nominal effective exchange rate, and subsequently there was a depreciation by a similar rate."
Finally the Bank of Israel acknowledged that housing prices are falling, "Housing market data continue to indicate a slowing of activity. The decline in the number of transactions continued, and in the past five months, home prices have declined by 2.4%. At the same time, there has been a significant decline in the number of building starts."
Published by Globes [online], Israel business news - www.globes-online.com - on April 16, 2018
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