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. The Bank of Israel has previously said that it will begin raising the interest rate in the final quarter of this year.
The Bank of Israel said that the inflation environment continues to rise, supported by the accommodative monetary policy, but remains below the target. One-year expectations and forecasts are slightly below the lower bound of the target range, and inflation expectations for two years and longer are within the target.
The Bank of Israel continued, "In the first quarter as well, the economy grew at a solid pace and in a balanced manner. Services exports continued to grow at a rapid rate and growth in goods exports continued. The labor market remains tight. After some slowing, business sector wages resumed rising, at a more rapid rate."
The Bank of Israel is ambivalent about the global economy, saying, data regarding the global economy remain positive, though the picture now is less even. In recent weeks, the risk of a trade war breaking out declined, but geopolitical risks continue, and the financial risk in emerging markets increased. In the US, the normalization of monetary policy is expected to continue, while in Europe, Japan, and the UK inflation is weakening and the withdrawal from monetary accommodation will likely be deferred.
On the shekel the Bank of Israel observed that in the past year, the nominal effective exchange rate has been relatively stable. Since the previous interest rate decision, there has been an appreciation of 1.4% in terms of the nominal effective exchange rate.
Finally on the housing market the Bank of Israel noted that in the past 6 months, home prices declined by 2.7%. The number of transactions by buyers upgrading their homes continues to decline, but the most recent data indicate an increase in transactions by first home buyers. The decline in residential construction investment continues.
Published by Globes [online], Israel business news - www.globes-online.com - on May 28, 2018
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