The Bank of Israel Monetary Committee, headed for the first time by new Governor Amir Yaron, has kept the interest rate unchanged at 0.25%. Last month the rate was raised by 0.15% from its historic low of 0.10%, where it had been anchored since March 2015.
The Bank of Israel also cut the GDP growth forecast for 2019 from 3.6% to 3.4% and expects growth in 2018 to be 3.2%.
The Bank of Israel sees another rate hike to 0.5% in the third quarter of 2019 followed by three more hikes in 2020 to 1.25%.
In making its decision the Monetary Committee said, "The inflation rate has stabilized above the lower bound of the target range, notwithstanding the slightly lower than expected decline of 0.3% in the CPI for November. In the past six months, the annual inflation rate has ranged between 1.2% and 1.4%. In the coming months, inflation is expected to range around the lower bound of the target. The Research Department forecasts inflation of 1.3% over the coming four quarters. Medium-term expectations remained entrenched within the target range. Continued wage increases and the economy being around full employment will support a continued rise in inflation toward the midpoint of the target range, as will the depreciation, to the extent it persists.
On growth, the Bank of Israel said, "An analysis of recent data and of updated indicators of economic activity continues to support the assessment that the economy is converging to its potential growth rate, despite the low growth in the second and third quarters. The tight labor market supports this assessment, as does the growth of imports and the widening of the trade deficit. Indicators of fourth quarter activity point to some acceleration in the growth rate."
On the world economy the Bank of Israel said, "The global macroeconomic picture continues to convey a slowing of momentum, high volatility, and lack of certainty. The US economy remains robust, though the risks due to the worsening “trade war” and the slowing in Europe continues to weigh on momentum. There were price declines and sharp volatility in most equity indices, and expected monetary contraction worldwide is seen to be slowing."
Finally the Bank of Israel said, "Since the increase in the interest rate, the nominal effective exchange rate has been relatively stable, after the shekel depreciated in the preceding weeks."
Published by Globes, Israel business news - en.globes.co.il - on January 7, 2019
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