The Bank of Israel today published the minutes of the interest rate decision for December, which kept the interest rate unchanged at 2%. The minutes state that the Bank of Israel's preliminary assessment is that Operation Pillar of Cloud had little impact on the economy.
However, some Monetary Committee members estimate that real economic activity declined in November, although there was substantial improvement in the housing supply and a drop in housing prices.
"Committee members were in agreement that the recent military operation in the Gaza Strip did not have marked effects on the present and future growth rates of the economy, and that there were only moderate effects on the foreign exchange and capital markets," state the minutes. "Committee members project a one-time addition to defense expenditures in order to replenish inventories, but it is too early to assess if this will have an effect on the overall budget."
Developments in the housing market continued to be a key topic of discussion for the Monetary Committee members in the interest rate decision. Committee members believe that it too early to assess the effect of the step taken last month by the Supervisor of Banks limiting the loan-to-value in housing loans.
"Activity in the construction industry is strong compared with its levels in the past decade," state the minutes. "The number of building starts remains high and is expected to continue to be reflected in an increased stock of homes. At the same time, the level of building starts remains below the record level of mid2011, and there is a decline in the rate of properties marketed by the Israel Land Administration."
What about the labor market and the real economy? "Labor market indicators show a mixed picture; although there is continued improvement in employment, this improvement is seen mostly in the public sector, while employment in the business sector has not increased. In addition, there appears to have been a decline in the utilization of production inputs, along with a decline in the level of productivity (which is in line with an increase in the participation rate)," states the Bank of Israel.
As for the global economic situation, the Monetary Committee members are worried about the US fiscal cliff, and its negative effect on the economy, as well as the debt crisis in Europe, which appears to be reaching core eurozone economies, such as Germany.
Published by Globes [online], Israel business news - www.globes-online.com - on December 10, 2012
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