The Bank of Israel is getting further away from taking additional steps to influence the housing market, according to the protocols of the meeting of the bank's Monetary Committee on the interest rate for June. The protocols were released today.
At the meeting in May, the central bank decided to keep its key lending rate at 2.5% for June, but senior managers at the bank said at the time that "extraordinary measures" might be adopted if the crisis in Europe worsened.
This view is also expressed in the committee protocols, which state that if the situation in Europe deteriorates, the bank will adjust interest rates in mid-month, and will not wait for the regular interest rate decision at the end of the month. In 2008, after the collapse of Lehman Brothers, the Bank of Israel made a surprise 0.5% cut in interest rates, in a move coordinated with other central banks.
"Participants pointed to the increased uncertainty regarding the crisis in Europe. In addition, various scenarios of possible development of the crisis in Europe were reviewed, as was the optimal timing for a policy response if such scenarios did come about," the protocols state. "In that connection, it was stated that in the event of a scenario with a negative impact on the Israeli economy, the Monetary Committee will be prepared to reach necessary decisions, even during the intermeeting period."
In the previous two months, the Bank of Israel indicated that it was considering further intervention in the housing market, because of the rise in the housing item in the Consumer Price Index. In April, the housing item rose 0.8%, following a 0.4% rise in March. In the twelve months to the end of April, the housing item rose 2.8%, compared with 2.2% in the year to March. In the protocols released today, the bank now states that it is retreating from the possibility of further measures in the housing market.
"In terms of the effect of monetary policy on the housing market, the forum discussed the stability of home prices against the background of the relatively high annual level of building starts. It was noted that these figures, as well as macroprudential steps taken in the past, are likely expected to delay the need for additional macroprudential steps. With that, the Committee is aware of changes and developments in the housing market, and will continue to monitor developments in that market," the protocols state.
Published by Globes [online], Israel business news - www.globes-online.com - on June 11, 2012
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