BoI keeps rate unchanged due to low inflation, strong shekel

Amir Yaron  photo: Rafi Kutz

The Bank of Israel Monetary Committee has left the June interest rate unchanged at 0.25%.

The Bank of Israel Monetary Committee headed by Governor Prof. Amir Yaron, has left the interest rate unchanged at 0.25%, as expected. The bank cited lower than expected inflation, the strengthening of the shekel, strong Israeli growth and global uncertainty due to the US-China trade conflict as reasons for keeping the rate unchanged.

In explaining its decision the Bank of Israel said, "The inflation environment remains stable above the lower bound of the target range. The CPI for April was lower than pre-publication assessments, but CPI readings for the previous three months surprised to the upside, and year-on-year inflation is at a level similar to that of recent months. One-year inflation expectations and forecasts are slightly above the lower bound of the target range, and forward expectations for medium and longer terms remained near the midpoint of the target."

Regarding the shekel, the Bank of Israel continued, "For the year to date, the shekel has strengthened by 6% in terms of the nominal effective exchange rate, and since the last meeting it has appreciated by 1.2%. The appreciation is the main factor that is delaying the continued increase of the inflation rate toward the midpoint of the target."

The Bank of Israel added, "The high growth rate in the first quarter was impacted markedly by stronger new vehicle sales, along with solid growth in exports. Net of this effect, the economy grew at a rate slightly below its potential. The labor market remains tight: The participation and employment rates increased slightly from already record levels, and wages continue to rise, led by the business sector."

Finally on the global economy the Bank of Israel said, "The risks to the global economy increased, mainly in view of the increasing severity of the "trade war", despite first-quarter growth in major economies surprising to the upside. The slowdown in world trade continues, and includes emerging markets as well. The IMF again revised downward its forecasts for world trade and growth for most regions."

Published by Globes, Israel business news - en.globes.co.il - on May 20, 2019

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

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Amir Yaron  photo: Rafi Kutz
Amir Yaron photo: Rafi Kutz
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