The Bank of Israel Monetary Committee has kept the interest rate for February unchanged at 0.1%, as expected. Last month Bank of Israel Governor Dr. Karnit Flug said that the rate was unlikely to rise in the near future. The interest rate has been unchanged since it was cut to a historic low of 0.1% last March.
In citing the reasons for keeping the rate unchanged, the Bank of Israel said, "Against the background of increasing volatility in financial markets and energy prices, the short term inflation environment continued to decline this month, and there were declines in medium-term (forward) expectations as well. Long-term (forward) expectations remain entrenched above the midpoint of the target range. Further price reductions initiated by the government (in public transportation, water, and automobile insurance) are expected to be reflected in the CPI for January and February."
The Bank of Israel added, "Partial indicators that became available this month point to economic activity continuing its moderate improvement in the fourth quarter of 2015, and the effect of the security situation on economic activity remaining moderate. The Companies Survey indicates a slight improvement vis-à-vis the third quarter. The job vacancy rate continues to increase, and together with an increase in wages reflect a positive picture in the labor market."
On the world economic situation, the Bank of Israel said, "In the past month, global financial markets declined amid high volatility. The picture of activity remains positive in Europe, the picture is mixed in the US, and weakness continues in emerging markets. The IMF and the World Bank reduced their 2016 and 2017 forecasts for global growth and world trade. The ECB expressed readiness to further enhance the monetary accommodation, and market expectations are that the rate of increase in the federal funds rate will be lower than that expected last month."
On the shekel, the Bank of Israel continued, "From the monetary policy discussion on December 27, 2015, through January 22, 2016, the shekel weakened by about 2% against the US dollar and by about 0.4% in terms of the nominal effective exchange rate. Over the past 12 months there has been an appreciation of 6.6% in terms of the nominal effective exchange rate, and its level continues to weigh on growth of exports and the tradable sector."
On Israeli home prices, the Bank of Israel said, "In recent months, the increase in home prices accelerated, and they rose by 7.6% over the past 12 months. The volume of new mortgages taken out remains high. The elevated level of activity in the construction industry is expected to continue to contribute to increasing supply."
Published by Globes [online], Israel business news - www.globes-online.com - on January 25, 2016
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