"Developments in the fourth quarter of 2009 reinforce the assessment that there was a sharp turnaround in Israel's economic and financial environment in the second half of the year," says the Bank of Israel in its Inflation Report for the Fourth Quarter of 2009, published today. "Indeed it seems that the real recovery is quite strong. GDP in 2009: fourth quarter is expected to show an increase of more than 4% over its level in third quarter."
The Bank of Israel adds that recovery is also apparent in the labor market, noting that the unemployment rate declined slightly in the fourth quarter of 2009, breaking the upward trend recorded since July 2008.
As for prices, the Bank of Israel believes, "In the first quarter of 2010 prices in Israel will increase at a rate consistent with the achievement of the inflation target, and that the upside and downside risks of deviation are balanced. For the next few months, inflation viewed over the previous twelve months will remain above the upper limit of the target range, because the expected expansion in economic activity, which boosts demand, and increases in world commodity prices, which pushes up prices of factors of production and which are passed on to consumers."
This upward pressure on prices will be moderated by "the contradictory effect of the increases totaling 75 basis points in the Bank of Israel's interest rate, on the relatively slow pace of the global recovery, and the 0.5 percentage point cut in VAT on 1 January 2010, which will have some downward effect on the CPI in the first months of the year."
Bank of Israel said that it would continue to implement an expansionary monetary policy to support economic growth, while bringing inflation in 2010 back to the midpoint of the target price stability range. "It will do this by means of a gradual return of the interest rate to a "normal" level; the path of the return will be determined in accordance with the inflation environment, the firmness of growth, both global and in Israel, and the pace at which the major central banks increase their interest rates, and will take into account developments in the exchange rate of the shekel."
Published by Globes [online], Israel business news - www.globes-online.com - on February 1, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010