The outstanding debt of Israeli householders grew NIS 5.4 billion (1.2%) to NIS 451 billion in July, according to Bank of Israel figures published today. Most of the rise in household debt was caused by an increase in mortgages; housing debt was up NIS 2.9 billion to NIS 314 billion.
The public took an unprecedented $6.6 billion in mortgages in July. The Bank of Israel noted that total (new) mortgages fell slightly in August, but the total was still high at NIS 6.2 billion, compared with the NIS 5.5 billion monthly average in January-July 2015.
The Bank of Israel said that the proportion of mortgages for apartment purchases for investment rose 2% to 17.1% in July, the steepest increase since 2012, as a result of investors bringing forward their apartment purchases in order to avoid the purchase tax hike. As in June and August, the interest rate rose for all types of mortgages: by 0.15% for index-linked mortgages at fixed and variable interest, and by 0.12% for non-linked fixed interest mortgages.
While household debt is climbing monthly, the business sector's debt has remained almost unchanged since December 2014. The constant level of business sector debt indicates that the business sector is not taking advantage of the negligible interest rate to raise debt in a way that could stimulate non-financial economic activity in Israel. Business sector debt totaled NIS 812 billion in July, compared with NIS 813 billion in December 2014 and NIS 798 billion in December 2013. Excluding banks and insurance companies, the business sector issued NIS 1.9 billion in bonds in August, consisting mostly of marketable bonds. This is less than the NIS 2.4 billion monthly average in January-July 2015.
NIS 2 billion in marketable and non-marketable debt in Israel and overseas credit was repaid in July-August, offset by bank and non-bank loans and the effect of a 0.4% shekel devaluation against the dollar, which increased the shekel value of debt denominated in or linked to foreign currency.
One-time write-downs
The Bank of Israel believes that the low inflation expectations are excessively influenced by one-time price decreases, such as the lowering of VAT, cut in electricity rates, and the elimination of the television fee. On September 20, the Bank of Israel reported that in August, market forecasters predicted 0.8% inflation for the next 12 months, below the lower bound of the 1-3% inflation target set by the Bank of Israel Law. As of September 20, the figure was an even lower 0.4%.
A check by "Globes" showed that inflation expectations for the next 24 months were below the legally established target. In response to a question from "Globes," Governor of the Bank of Israel Karnit Flug said, "Short-term interest rate expectations are very much affected by one-time measures in the pipeline, including the VAT cut, cuts in electricity rates, and cancellation of the television fee. These factors amount to a combined 0.7%." Flug added that expectations for the next two years were within the target.
Flug was speaking at a Bank of Israel press conference held last Thursday, following the Bank of Israel Monetary Committee's decision to leave the interest rate for October unchanged at 0.1%. It was revealed at the press conference that the Bank of Israel had lowered its interest rate forecast for 2016 from 1.25% at the previous press conference in June to 0.5%.
Published by Globes [online], Israel business news - www.globes-online.com - on September 29, 2015
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