The Monetary Committee of the Bank of Israel announced today that it has decided to leave the central bank's key interest rate unchanged at 0.1%.
Inflation is the key to if and when interest rates will rise from the historic low of 0.1% set in March 2015. On inflation the bank said, "The rise in the inflation environment continues, supported by the accommodative monetary policy, and it appears that the inflation environment is moving toward entrenchment within the price stability target range (1%-3% annually). Inflation over the past 12 months is in the lower part of the target range, and 1-year inflation expectations are around its lower bound. The main risk to the entrenchment of inflation within the target is the possibility of a sharp appreciation in the shekel."
The Bank of Israel's Research Department has made it clear in the past that the interest rate will be increased in the final quarter of 2018 if inflation is within the annual target range of between 1% and 3%. Over the past 12 months inflation is running at 1.4%. The Bank of Israel has two more rate decisions this year in October and November and analysts expect a rate hike in November with another next year.
On growth the Bank of Israel said, "Although second quarter growth was relatively low, it apparently does not indicate a change in trend, with most of the decline in growth deriving from fluctuations in vehicle imports. Current indicators of activity support the assumption that the economy has returned to a faster pace of growth in the third quarter. The labor market remains tight, and wages continue to rise at a solid pace, particularly in the business sector."
Moving onto the world economy, the Bank of Israel added, "The growth rate of the global economy increased in the second quarter, but weakness in momentum is apparent, and the growth rate of world trade continues to slow. US inflation is ranging around the two percent target, and the Federal Reserve is expected to raise its interest rate twice more in 2018. In Europe and Japan, core inflation remains low and the accommodative monetary policy continues."
On the shekel the Bank of Israel noted that the Israeli currency is firm. "The shekel remains stable against major currencies. Since the previous interest rate decision, there has been an appreciation of about 2.3% in terms of the nominal effective exchange rate, mainly as a result of the weakening of emerging market currencies."
Finally on housing prices, the Bank of Israel said, "The downward trend in home prices, which began approximately a year ago, has halted. The increase in new mortgage volume continues, and mortgage interest rates remain stable."
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2018
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