The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for October unchanged at 0.1%. The interest rate has been unchanged since it was cut to a historic low of 0.1% in March 2015. At the same time the Bank of Israel has raised its growth forecast for 2016 and 2017. The growth forecast for 2016 has been raised from 2.4% to 2.8% and the growth forecast for 2017 has been raised from 2.9% to 3.1%.
In citing the reasons for keeping the interest rate unchanged the Bank of Israel said, "After the months of May through July, when the Consumer Price Index increased by a rate consistent with the seasonal path of the inflation target, the CPI for August was markedly lower than the path. Inflation as measured by the change in the CPI over the past 12 months continues to be negative, and short-term inflation expectations are still below the lower bound of the inflation target range. Medium-term and long-term expectations remain anchored within the target range."
On the economy the Bank of Israel said, "The second estimate of National Accounts data for the second quarter was revised upward, and indicators that have become available to date point to the assessment that in the third quarter the economy continued to grow by a rate not less than that of recent years. The picture conveyed by labor market data remains positive, with growth in employment and in wages; a shortage of workers is becoming apparent in various industries."
The Bank of Israel continued, "The global economy continues to grow by a slow rate, and the growth rate of world trade continues to decline. Central banks continue to conduct very accommodative monetary policy. Assessments are that there is a relatively high probability that the US federal funds rate will be increased by the end of the year, though the path of the expected interest rate increase for the coming years is lower than previously assessed."
Regarding the shekel, the bank of Israel observed, "From the monetary policy discussion on August 28, 2016, through September 23, 2016, the shekel strengthened by 0.2% against the dollar. In terms of the nominal effective exchange rate, the shekel appreciated by 0.3%, and has appreciated by 4.9% over the past 12 months. The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector.
Finally on home prices, the Bank of Israel said, "In the past two months home prices have stabilized. In the second quarter there was an increase in the number of building starts. Monthly mortgage volume is stabilizing, with a continued increase in mortgage interest rates."
Published by Globes [online], Israel business news - www.globes-online.com - on September 26, 2016
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