In its semi-annual monetary policy report, the Bank of Israel says that the mortgage interest rate continued to increase, leading to a decrease in the number of mortgages taken. The bank explained the rise in mortgage interest rates by "the increasing risk in the banking system’s housing credit portfolio and the measures taken in the past by the Banking Supervision Department."
The bank states that apartment prices continued rising, although the stock of homes for sale reached record levels. There was some moderation in the number of building starts in June, while the number of building permits continued to increase.
The bank estimates that the surprising decrease in the market growth rate in the first quarter was only temporary and that the market continues growing at a moderate rate. The Central Bureau of Statistics initially reported that the market grew by only a minor 0.8% in the first quarter, but revised this data twice, leading to the current growth rate of 1.7%.
In the report, the Bank of Israel claims that the decline in growth was due to reduced exports, which was partially a result of the decline in the growth rate of world trade and of the accumulated appreciation of the shekel, as well as one-off developments among a number of large exporters in the economy. In contrast, current private consumption continued its impressive growth, leading economic growth. The labor market remained robust: employment continued to grow, unemployment remained low, wages continued to increase and the economy was close to full employment.
The interest rate is only expected to increase in 2017
Another positive surprise concerned state revenues from taxes. The Bank of Israel said that total tax revenues increased by about 11.3% in real terms, after a detraction of legislative changes and one-off revenues.
As a result, state revenues were about NIS 3.2 billion higher than the forecast, and expenses were about NIS 1.7 billion lower. Therefore, the domestic deficit was much lower than forecasted: a deficit totaling NIS 1.8 billion in the first half of 2016, about NIS 4.9 billion less than the seasonal forecast that is consistent with the deficit target for 2016.
As for the future, the bank repeated the revised forecast of its Research Department that the interest rate will increase only toward the end of 2017 and inflation will exceed 1% towards the end of the first half of 2017.
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2016
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