The Bank of Israel has left its key interest rate unchanged for July at 0.75%, the bank announced today. The announcement is in line with market expectations.
Analysts said in the past few days that a recent improvement in macro-economic indicators was likely to lead the bank to make no immediate change in interest rates, but that falling inflation supported an interest rate cut in the coming months.
The Consumer Price Index for May rose by a moderate 0.1%, while in the twelve months to May the index rose 1%, which is at the bottom of the government's price stability target range of 1-3%.
According to forecast presented to the Monetary Committee by the Bank of Israel Research Department, Israel's gross domestic product will rise by 2.9% in 2014, and by 3% in 2015. This compares with projected growth of 3.1% in 2014 and 2.8% in 2015 in the previous forecast.
The rate of inflation over the year ending in the second quarter of 2015 is expected to be 1.6%. The Research Department sees the Bank of Israel interest rate remaining at 0.75% to the end of 2014, and to start rising during 2015, to reach 1% in twelve months' time.
In giving the reasons for today's decision, the central bank cited the low inflation and moderate growth prevalent in the Israeli economy. "National Accounts data for the first quarter were revised upward, but there are signs of moderation in the growth of private consumption, and the virtual standstill in goods exports continues against the background of moderation in world trade. The Composite State of the Economy Index increased by 0.2 percent, and most indices of confidence and expectations improved this month," the announcement says.
The central bank also notes the recent reduction in the World Bank's global growth forecast this month, and that "the ECB adopted several accommodative monetary measures this month, while in the US the tapering process continues, and in the UK, the Bank of England provided a first indication that it is likely that with the recovery, there will be an increase in the interest rate by the end of 2014."
The Bank of Israel calls particular attention to the state of Israel's housing market. "Home prices continued to increase in March-April, and their annual rate of increase rose above 8%. The rate of new mortgages taken out remained elevated, while risk characteristics of new mortgages remained stable after they declined due to steps taken by the Supervisor of Banks. In the first quarter of the year, there was a slowdown in building starts and completions, as well as in the number of transactions," the announcement says.
Published by Globes [online], Israel business news - www.globes-online.com - on June 23, 2014
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