The Bank of Israel Monetary Committee headed by Governor Dr. Karnit Flug has kept the interest rate for February unchanged at 1%, in line with expectations. The Bank of Israel has kept the rate unchanged for the past three months after lowering the rate by 25 basis points in October.

After making the interest rate announcement this evening, the Bank of Israel intervened on the foreign currency market, buying more than $100 million according to market sources.

The Bank of Israel said that the main considerations for keeping the interest rate for February 2014 unchanged at 1% were low inflation, continued moderate growth, appreciation of the shekel over the past month, and continued rises in home prices.

The Bank of Israel noted that the 2013 inflation rate was 1.8% and inflation expectations for 2014 are all slightly below the midpoint of the inflation target.

On growth, the Bank of Israel said, "Data which became available this month indicate continued growth of the economy at a moderate rate, with some improvement in the fourth quarter of 2013 compared with the preceding quarter. The picture in the fourth quarter regarding exports is better than it was in the third quarter, but there was some moderation again in December. Over the longer term there has essentially been a standstill in exports, against the background of moderate growth of world trade and the appreciation of the shekel."

On the shekel exchange rate, the Bank of Israel said, "Since the last monetary policy discussion, the shekel appreciated by 1% against the dollar, while the dollar strengthened against most major currencies worldwide. In terms of the nominal effective exchange rate, the shekel appreciated by 1.5%."

And on home prices the Bank of Israel noted, "After data in the previous month had indicated some moderation, there was an increase this month in home prices and in mortgages granted. The number of transactions and the share of investors in those transactions also began to increase again. Against the background of the Supervisor of Banks directives regarding housing credit, the trend of decline continues in new mortgages’ risk characteristics, such as the average loan to value ratio, the payment to income ratio, and the share of mortgages granted at variable rate interest."

Published by Globes [online], Israel business news - www.globes-online.com - on January 27, 2014

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