The Bank of Israel Monetary Committee headed by Governor Dr. Karnit Flug has kept the interest rate for May unchanged at a historic-low of 0.1%. Of the 20 analysts in the "Bloomberg" panel, 17 had expected the rate to remain unchanged and three predicted a cut. But some analysts expect the Bank of Israel to cut the rate to zero in the coming few months.
In citing the reasons for its decision, the Bank of Israel said, "The CPI for March increased by 0.3%, led by fuel prices and by the housing component. The rate of inflation as measured over the past 12 months was negative 1%. Short-term inflation expectations from various sources are near the lower bound of the inflation target range, or slightly below it. Longer-term expectations remained stable around the midpoint of the target range (1-3% annually)."
The Bank of Israel added, "Indicators of economic activity for the first quarter point to the economy continuing to grow at the moderate rate of the past two years. Companies Survey data support this assessment. The Composite State of the Economy Index increased by 0.4% in March, and tax revenues increased. Net of extraordinary effects, goods exports increased by 3.3% in March, and declined by 0.9% in the first quarter, in dollar terms."
Regarding the shekel the bank said, "From the monetary policy discussion on March 22, 2015, through April 24, 2015, the shekel strengthened by 3% against the dollar, and appreciated by 1.7% in terms of the nominal effective exchange rate. For the year to date, there has been an effective appreciation of 3.7% in the shekel, against the background of accommodative monetary policy in several major economies, among other reasons. A decline in the projected rate of world trade growth and continued appreciation are liable to weigh on growth of exports and of the tradable sector.
On home prices the Bank of Israel added, "The increase in home prices continues, and new mortgage volume remains elevated. The number of transactions moderated slightly in February, among investors as well."
Published by Globes [online], Israel business news - www.globes-online.com - on April 27, 2015
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