The Bank of Israel Monetary Committee, headed by Governor Dr. Karnit Flug, has kept the interest rate for January unchanged at 0.25%, in line with analysts' expectations.
In citing the main considerations behind the decision, the Bank of Israel said its sees the economy recovering from Operation Protective Edge and forecasts 3.2% growth in 2015.
On inflation the Bank of Israel said, "The rate of inflation over the previous 12 months was negative 0.1%, compared with negative 0.3% over the 12 months ending in October. Excluding the expected effect of a reduction in electricity and water prices, inflation expectations for the coming year from the various sources are near the lower bound of the inflation target range. According to the Research Department’s staff forecast, the inflation rate in 2015 is expected to be 1.1%, and net of the effect of the electricity and water price reductions it is expected to be 1.5%."
On the shekel the Bank of Israel added, "There was considerable volatility in the foreign exchange market this month. Over the month, the shekel appreciated by 0.2% in terms of the nominal effective exchange rate, and weakened by 2% against the dollar. Since the beginning of August, when the trend of depreciation in the effective exchange rate began, the shekel has weakened by 6.9%, and it has depreciated by about 3.7% 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.
On the real estate market, the Bank of Israel commented, "Home prices increased sharply in September-October, even before the announcement of the cancellation of the zero-VAT plan, and it appears that there is an increase in the rate of mortgages being taken out and in new home sales. There were sharp increases in the number of building starts and building completions in the third quarter."
Published by Globes [online], Israel business news - www.globes-online.com - on December 29, 2014
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