The Bank of Israel Monetary Committee has left the interest rate unchanged at 0.25%. This is the second rate decision during Prof. Amir Yaron's term as Governor of the Bank of Israel. The rate was raised from its historic low of 0.1% to 0.25%, in the final rate decision before he took office at the end of November.
One good reason for not raising the rate has been the recent strengthening of the shekel. The Bank of Israel said, "Since the last interest rate decision, the shekel strengthened by 2% in nominal effective exchange rate terms. If the appreciation continues, it could delay the inflation rate’s rise toward the midpoint of the target.
On inflation, the Bank of Israel said, "The inflation environment remained near the lower bound of the target range. After the annual inflation rate declined below the target range in December, it returned above the lower bound in January, and in the coming months it is expected to hover near it. One-year expectations and forecasts from the various sources are around the lower bound of the target, while medium-term and long-term expectations increased slightly toward the midpoint of the target."
On the economy in general the Bank of Israel said, "In the fourth quarter of 2018, the economy returned to a growth rate that is in line with the long term pace, after slowing in the second and third quarters of 2018. Growth was driven by private consumption, while investment in residential construction has continued to contract for several quarters and goods exports remain sluggish. In recent months, the unemployment rate increased slightly, and the job vacancy rate declined, but the labor market remains tight and supports the assessment that the economy is in a full employment environment. In particular, wages continue to rise, led by the business sector and across all industries."
On the international economy, the Bank of Israel said, "The global macroeconomic picture continues to point to a decline in both the growth and inflation rates. The main risks include the slowdown in Europe, an escalation of the trade war, and Brexit. The IMF again revised its growth forecast downward for most regions, particularly Europe. Equity indices recovered, in light of the expected halt in the process of monetary contraction, and renewed optimism regarding US-China trade negotiations."
Published by Globes, Israel business news - en.globes.co.il - on February 25, 2019
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