The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has kept the interest rate unchanged at 0.25%. Moreover, while the Bank of Israel was talking about a rate hike until last month, it now sees the possibility of a rate cut.
Yaron said, "I will say at the outset that the decision was not easy, and was not unanimous. When the minutes of the meeting are published in two weeks, you will be able to see the considerations in favor of reducing the interest rate at this time."
In its interest rate statement, the Bank of Israel said, "The assessment is that in view of the inflation environment in Israel, the monetary policies of major central banks, the slowing in the global economy, and the continued appreciation of the shekel, it will be necessary to leave the interest rate at its current level for a prolonged period, or to reduce it in order to support a process at the end of which inflation will stabilize around the midpoint of the target range, and so that the economy will continue to grow strongly."
On inflation the Bank of Israel said, "The inflation environment remains low. Inflation in the past 12 months was 0.6% while inflation excluding energy and fruit and vegetables has been stable in the range of 0.9-1.1% since the beginning of the year. Most of the negative contribution to the CPI in recent months came from the components that are traditionally volatile, but also from the cumulative appreciation of the shekel since the beginning of the year. Annual inflation is expected to decline in the coming months, and to return to near the lower bound of the target range within a year. Long-term expectations are anchored near the midpoint of the target range.
On the shekel the Bank of Israel observed that, "Since the previous interest rate decision, the shekel has strengthened by 1.2% in terms of the nominal effective exchange rate, and by 9.1% since the beginning of the year. The appreciation is making it more difficult to return inflation to the target range.
Published by Globes [online], Israel business news - en.globes.co.il - on October 7, 2019
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