The Bank of Israel Monetary Committee has raised the interest rate by 0.15 basis points from 0.1% to 0.25%. This is the first interest rate hike since June 2011 and the first rate change since March 2015, when it was cut to the historic low of 0.1%. Analysts had been divided on whether the Monetary Committee would raise the rate but most had expected it to remain unchanged.
Acting Governor of the Bank of Israel Nadine Baudot-Trajtenberg chaired the Monetary Committee meeting as Karnit Flug has ended her term of office as Governor, while her successor Amir Yaron will not assume the job until next month.
The Bank of Israel is expected to raise the interest rate one more time in 2019.
In explaining its decision the Bank of Israel said, "After a continued rise in inflation since the beginning of 2018, the inflation rate is stabilizing slightly above the lower bound of the target range, and is expected to remain within the target in the coming months as well. One-year expectations and forecasts from the various sources hover around the level of 1%. Medium-term expectations remained entrenched within the target range. The rise in wages in the economy and the expansionary fiscal policy will support the continued entrenchment of inflation within the target. The main risk to this is the possibility of a sharp appreciation of the shekel."
The Bank of Israel added, "An analysis of the data and of updated indicators of economic activity leads to the assessment that the economy is converging to its potential growth rate. In the second and third quarters, there was some slowdown in the economy’s growth rate, but current indicators of activity support the assessment that the economy is at full employment, and in particular, the tight labor market data indicate a high level of demand."
On the shekel the Bank of Israel said, "Since the previous interest rate decision, the shekel weakened by 3.6% in terms of the nominal effective exchange rate and by 3.2% vis-à-vis the dollar."
On real estate prices, the Bank of Israel said, "Home prices stabilized in recent months. The number of transactions and mortgage volume appear to be stabilizing, with a slight increase in mortgage interest rates."
Published by Globes, Israel business news - en.globes.co.il - on November 26, 2018
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