BoI unconcerned about housing market

Karnit Flug  picture: Eyal Yitzhar
Karnit Flug picture: Eyal Yitzhar

The Bank of Israel believes a higher supply of housing will offset upward price pressures.

The Bank of Israel Monetary Committee's decision at its last monthly session not reduce the bank's interest rate and not to launch a quantitative easing program was unanimous, the minutes of the meeting released today show. The minutes also give an indication of the Bank of Israel's view of the real estate market. Senior bank officials assess that the growth expected in the supply of housing in the next two years will prevent a substantial price rise.

"After two very low monthly Consumer Price Index readings, partly a result of falls in the prices of water, power and fuel, forecasts for inflation over the next year have returned to within the target range, close to the lower limit of the range. The bank's Research Department gives a similar assessment, while expectations derived from the capital market are still low. The committee members believe that the low inflation rate and low inflation expectations do not indicate weakness in real economic activity," the minutes state.

"All members of the committee supported leaving the interest rate unchanged, after the 0.15 percentage point reduction the previous month. This was because they believed that the effect of the interest rate cut last month had not yet been exhausted, while the rise in inflation expectations and the growth environment do not support change in the interest rate environment, particularly in the light of the risks in the assets market, among them in the housing and corporate bond markets."

The Bank of Israel, then, believes that the deflation was temporary and that in the next few months inflation will return to within the target range and does not indicate a slowdown in growth. As for the real estate market and the contribution of virtually zero interest rates to the rise in housing prices, the Bank of Israel is apparently not concerned, and points out that alongside the high level of demand a rise in supply is to be expected.

"There are signs of a renewed rise in activity and prices in the housing market, manifested in a high number of transactions and in a rise in mortgages granted. Nevertheless, the substantial rise in the stock of homes because of the rise in housing completions, a rise expected to be maintained in the next two years because of the high number of housing starts in the past two years, will be a counter force against possible upward pressures on prices," the Monetary Committee minutes state.

Published by Globes [online], Israel business news - www.globes-online.com - on April 6, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Karnit Flug  picture: Eyal Yitzhar
Karnit Flug picture: Eyal Yitzhar
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