BoI leaves rate unchanged, cuts growth forecast

Amir Yaron  photo: Rafi Kutz

The Bank of Israel has not changed its forecast of a rate hike in 2019 and two rate hikes next year, despite expected rate cuts by the US Fed.

The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has left the interest rate for the next two months unchanged at 0.25%. The rate was raised to 0.25% last November from its historic low of 0.1%.

The Bank of Israel Research Department has cut its 2019 growth forecast from 3.2% to 3.1%. But it has not changed its forecast of a rate hike in the final quarter of 2019 to 0.5% and two rate hikes next year to 1% by the end of 2020, despite the expected rate cuts by the US Federal Reserve in the coming months.

The Bank of israel predicts inflation of 1.6% in 2019.

In explaining its decision today, the Bank of Israel said, "The inflation environment is above the lower bound of the target range, and recently it has increased slightly, with the economy being at a full employment environment. Since the beginning of the year, most CPI readings have surprised to the upside. The inflation rate over the preceding 12 months has been 1.5%, and it currently seems less likely that inflation will again fall below the lower bound of the target range. Most 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 said, "In the past year, the shekel has strengthened by 4.3% in terms of the effective exchange rate. In the intermeeting period, the shekel was relatively stable vis-à-vis the dollar and the euro, and depreciated slightly in terms of the nominal effective exchange rate. If the appreciation resumes, it is expected to delay the continued increase of the inflation rate toward the midpoint of the target."

On growth, the Bank of Israel continued, "For several quarters, the economy has grown at around the potential rate. The moderation in the growth rate of private consumption appears consistent with the exhaustion of the process of expansion in the labor market. Some indicators of second quarter growth point to moderation, but others show that growth is continuing at a solid pace. Labor market data indicate that it remains tight."

Finally on the world economy, the Bank of Israel said, "The risks to the global economy remain significant, and the forecasts for world trade and growth in most regions were revised downward. The expectation in global financial markets is that major central banks will renew the process of monetary accommodation."

Published by Globes, Israel business news - en.globes.co.il - on July 8, 2019

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

5 Comments
View comments in rows
Update by email about comments talkback
POST
Comments
Amir Yaron  photo: Rafi Kutz
Amir Yaron photo: Rafi Kutz
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018