In one of the last decisions involving outgoing Governor of the Bank of Israel Prof. Stanley Fischer, the monetary committee has decided to keep the interest rate for July unchanged at 1.25%. Most analysts had expected this decision after the Bank of Israel lowered the interest rate by 50 basis points in two separate decisions during May.
The Bank of Israel said the main considerations in keeping the rate unchanged were, "Inflation expectations for the coming year, based on various sources, are near the midpoint of the inflation target, ranging from 1.7% to 2%. The actual increase in prices over the past 12 months is near the lower band of the target range, but is expected to rise to the center of the target by July, primarily due to the VAT rate increase."
The Bank of Israel added, "Indicators which became available in the past month point to the possibility that there has been a slowdown in the growth rate of economic activity in recent months. The two reductions in the interest rate in the past month provide, at this point, a response to the developments derived from those indicators. The Research Department’s updated growth forecast for 2013 remained unchanged, while the forecast for 2014 was revised downward primarily due to the fiscal program which was approved to deal with the budget deficit."
"The Federal Reserve recently announced an expected removal of policy accommodation in the future, subject to the continued improvement in macroeconomic conditions in the US. Against this background, bond yields rose in the US. This increase, should it continue, is likely to moderate the forces for appreciation of the shekel. The expansionary policy of major central banks, reflected in low interest rates and quantitative easing programs, continues for now."
The Bank of Israel continued, "Macroeconomic data that were published this month indicate a mixed picture for the US, a recessionary environment in Europe, weakness in emerging markets, and, in contrast, recovery in Japan and the UK. Global growth forecasts and projections for major economies were mostly revised downward."
Finally, turning to the housing market the Bank of Israel said, "Home prices, which are published in the Central Bureau of Statistics survey of home prices but are not included in the CPI, declined by 0.1% in MarchApril, after 9 consecutive months of increases. As a result, the rate of home price appreciation in the twelve months ending in April moderated to 8.9%, compared with an increase of 10% in the 12 months to March. With that, this is a single piece of data. Implementation of the taxation measures in the housing sector, which were approved by the government, is expected to moderate demand in the housing market."
Published by Globes [online], Israel business news - www.globes-online.com - on June 24, 2013
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