The Bank of Israel Monetary Committee has left the interest rate for October unchanged at 0.25%, in line with expectations. Last month the Bank of Israel lowered the interest rate by 25 basis points from 0.50% to an all-time low of 0.25%.
In citing the reason for leaving the rate unchanged the Bank of Israel mentioned zero inflation over the past 12 months, the economic slowdown, and the 1.6% depreciation of the shekel over the past month.
On the world economy the Bank of Israel said, "The global economic situation is uneven: recoveries are becoming established in the US and the UK, but slowdowns continue in Europe and Japan, and data in China were disappointing. World trade is growing at a slow rate. The Fed is still expected to increase the federal funds rate in the US in the second half of 2015, while in Europe and Japan, monetary easing is apparently being enhanced."
On home prices the Bank of Israel said, "Home prices increased by 6.8% in the previous 12 months, and the increase in the balance of housing credit continues. The Supervisor of Banks published a draft directive which instructs banks to increase their Tier 1 capital buffers in accordance with the volume of housing credit. The number of transactions continues to decline, against the background of the uncertainty in the market, among other things regarding the plan for a zero VAT rate on new homes."
The Bank of Israel Research Department also revised its forecast for 2014. The bank sees GDP growth of 2.3% in 2014 (down from 2.9% in its last forecast), and 3% (unchanged) in 2015. The rate of inflation over the next year (ending in the third quarter of 2015) is expected to be 1% and the Bank of Israel sees the interest rate remaining at 0.25 percent in 2015.
Published by Globes [online], Israel business news - www.globes-online.com - on September 22, 2014
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