BoI Monetary C'tee split on interest rate cut

Two of the five-member Monetary Committee opposed the October interest rate cut, fearing it would fuel home price rises.

The Bank of Israel Monetary Committee, chaired by Acting Governor Dr. Karnit Flug, was split on the interest rate decision for October 2013. According to the minutes of the meeting, published today, three of the five-member Monetary Committee voted to cut the interest rate for October to 1%, and two members voted to keep the rate unchanged.

The Monetary Committee members who supported reducing the interest rate emphasized the moderate growth rate of GDP and projections that this rate is expected to persist in the next few months. They emphasized the decline in exports against the background of the continued appreciation of the shekel, and noted that monetary policy in the advanced economies is expected to remain accommodative, as shown by the Fed’s decision to delay the tapering of its bond purchasing program, which will continue to push for appreciation of the shekel. They added that the recent measures by the Supervisor of Banks to reduce the risks in the mortgage market would offset the effects of reducing the interest rate on this market.

The Monetary Committee members who supported leaving the interest rate unchanged assessed that the effect of the short-term nominal interest rate on the exchange rate is minor, and that the current growth rate is consistent with the level of activity in foreign markets. These members emphasized the ramifications of lowering the interest rate on the continued increase in housing prices and on savings patterns. They also thought that the effect of the interest rate cuts in May have not yet been fully exhausted.

Published by Globes [online], Israel business news - - on October 7, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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