The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for December unchanged at 0.25%, in line with analysts' expectations.
In citing the main considerations behind the decision, the Bank of Israel made it clear that it was unfazed by the 0.4% GDP contraction in the third quarter of 2014, which it attributed to Operation Protective Edge. It added, "Indicators which became available after Operation Protective Edge, relating to goods exports, industrial production, trade and services revenues, and indirect tax revenues point to a recovery in activity, to the moderate growth level of just before the conflict."
On inflation the Bank of Israel said, "The CPI for October increased by 0.3%, led by an increase of 0.7% in prices of tradable goods. The rate of inflation as measured over the previous 12 months remained at negative 0.3%. This month, the decline continued in short-term and medium-term inflation expectations, which apparently incorporate the expected one-off effect of a reduction in electricity and water prices in January."
Moving on to the real estate market, the Bank of Israel said, "The decline in the number of housing market transactions continues, with an increase in sales of new homes in recent months, and a moderation in the rate of mortgages being taken out. Home prices declined by 0.1% in August-September, and their rate of increase over the 12 months ending in August slowed to 4.7%. Uncertainty continues regarding policy measures in the housing market and their ramifications."
On the shekel the Bank of Israel added, "The shekel weakened by 1.1% against the dollar this month, and appreciated by 0.2% in terms of the nominal effective exchange rate. Since the beginning of August, when a trend of depreciation in the effective exchange rate began, the shekel has weakened by 7.1%, and it has depreciated by about 3.9% since the beginning of the year. Continued depreciation will support a recovery in exports and in the tradable sector as a whole, and is expected to contribute to returning the inflation rate to within the target range."
Published by Globes [online], Israel business news - www.globes-online.com - on November 24, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014