As expected, the Bank of Israel Monetary Committee has kept the interest rate for February unchanged at 0.25%. The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the rate unchanged since reducing it to an historic low, in the decision for September, at the end of August.
The Monetary Committee said that it is "of the opinion that the current level of the interest rate supports the continuation of the recovery in economic activity, and the return of inflation to within the target range."
In citing the main considerations underlying its decision, the Bank of Israel warned that the mortgage market is heating up. "The number of new home purchases, particularly of homes in the price range that would have been included in the zero-VAT plan, has increased sharply since September, and from August through November there has been a moderate decline in the number of new homes available for sale. The rate of new mortgages taken out continues to be very high."
On inflation, the Bank of Israel said "Inflation expectations for short terms are below the lower bound of the target range, among other things against the background of continued declines in energy prices around the world and the expected effect of the reductions in water and electricity prices.
On growth, "Indicators that became available this month continue to point to an acceleration of activity in the fourth quarter, after a slowdown in the third quarter resulting from Operation Protective Edge. Fourth quarter Companies Survey data indicate improvement in most industries, with a notable upturn in low technology industries, which are affected more by the exchange rate. In recent months there has been a step up in the rate of growth of the Composite State of the Economy Index. Labor market data continued to indicate a positive picture.
On the shekel, "Against the background of exceptional developments in global foreign exchange markets, the shekel strengthened by 6.5% vis-à-vis the euro and weakened against the dollar by 1.3% this month. After a depreciation of 10.4% from August in the effective exchange rate, there has been an effective appreciation of 4.4% since December, so that the cumulative depreciation since August has been 5.5%.
On global developments, "In Europe, a large-scale quantitative easing program was announced, and interest rates were reduced in several countries. This month, the IMF reduced its projections for global growth and world trade volume development; the forecast for US growth was revised upward. Prices of energy and other commodities continued to decline this month, which is expected to support the recovery of growth in major economies and to work toward continued declines in inflation."
Published by Globes [online], Israel business news - www.globes-online.com - on January 26, 2015
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