Bank of Israel seen leaving interest rate unchanged

Prof. Amir Yaron Photo: Rafi Kutz

A rate rise is believed unlikely in the Monetary Committee's first meeting under Amir Yaron, but the growth forecast will focus attention.

The Bank of Israel is not expected to announce a further interest rate rise today, but the statement following the meeting of the bank's Monetary Committee will still arouse interest, if only because it will follow the first interest rate decision under new Governor of the Bank of Israel Amir Yaron.

The new governor will hold a press conference that will also deal with the updated forecasts by the Bank of Israel Research Department. The previous forecast, presented in September, indicated one interest rate rise in early 2019.

In November, however, the Monetary Committee sprung a surprise when it decided to raise the central bank's key lending rate to 0.25%, and signaled a further increase. The main reason given for the interest rate hike was that the committee members were persuaded that inflation had stabilized above a 1% annual rate.

Even those hawkish analysts who predicted the interest rate rise believe that another rise today is unlikely. One such is Yonatan Katz of Leader Capital Markets, who estimated yesterday that there would be two interest rate rises during 2019, and a further two in 2020, bringing the Bank of Israel rate to 1.25% by the end of that year. "A more aggressive interest rate projection would reflect a more hawkish approach to monetary policy than that of the new governor," Katz told "Globes".

Alongside the interest rate, the Bank of Israel's updated growth forecast will also be a focus of interest, in the light of the disappointing figures released by the Central Bureau of Statistics last week in its initial national accounts estimates for 2018.

According to the estimate, the Israeli economy grew by just 3.2% in 2018, which compares with 3.7% in the Bank of Israel's most recent forecast. That forecast projects 3.6% growth for 2019, but in recent weeks most analysts have cut their forecasts. Alex Zabezhinsky of Meitav Dash, for example, now forecasts growth of 2.2% this year. He explains his downward revision by the weak growth figures for 2018, the fall on global financial markets, and the slowdown in global growth and trade because of the trade war between the US and China, which also affects the Israeli economy. Zabezhinsky also believes that the fall in the share prices of technology companies will lead to a decline in the number of exits, recruitment, and activity generally in the high-tech sector, which is one of the Israeli economy's main growth engines. "In the economy's three growth engines: high-tech, real estate, and private consumption, we identify signs of a slowdown," Zabezhinsky said.

Published by Globes, Israel business news - en.globes.co.il - on January 7, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Prof. Amir Yaron Photo: Rafi Kutz
Prof. Amir Yaron Photo: Rafi Kutz
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