BoI cuts growth forecast

The central bank now sees 4.8% growth in 2011.

2 August 11 13:48, Globes' correspondent

The Bank of Israel has cut its 2011 GDP growth forecast to 4.8% in its Monetary Policy Report for January-June, published today, just two months after raising its forecast to 5.2%. The central bank also cut its 2012 growth forecast to 3.9%.

The Bank of Israel also expects the average monthly unemployment to fall to slightly below 6% in 2011 from 6.6% in 2010. The current unemployment rate is 5.7%.

The Bank of Israel expects the 12-month inflation rate through the third quarter of 2012 to fall to 2.9%, below the ceiling of the government's 1-3% target range, and the interest rate will gradually rise to 3.9% in the second quarter of 2012. The current interest rate is 3.25%

The Bank of Israel says that the main factors driving higher prices over the coming year will be higher rents and high commodities and energy prices.

The Bank of Israel noted that the Central Bureau of Statistics' index of house prices rose 3.8% since January and 13.7% in the preceding 12 months through June. "The rapid pace of increase of home prices is expressed in the widening gaps between house prices and rental levels and between house prices and average wage levels."

It adds, "The ratio of home prices to rent and the average salary are at historic highs." It also assumes that the housing item (rent) in the CPI continues to rise at a similar rate as in the past year, and any substantial development in this item will affect the inflation rate. Since the housing item in the CPI rose by 6.2% in the 12 months through June, barring major changes, the Bank of Israel predicts a further 6% rise in rents.

Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2011

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