"Monetary policy will remain expansionary for some time," Governor of the Bank of Israel Karnit Flug said today in the press briefing following the announcement by the Bank of Israel that the interest rate will be kept at 0.1% for January.
Referring to the remarks by Minister of Finance Moshe Kahlon that he expects that the Bank of Israel will raise its interest rate following the rate hike by the US Federal Reserve, Flug said, "The Bank of Israel is independent in its monetary policy decisions like other central banks and we act in accordance with our mandate to keep inflation within the price stability target range."
Flug pointed out that inflation in Israel in the past twelve months has been a negative 0.9%, but said the Bank of Israel saw this as partly a consequence of the fall in energy prices and of price reductions initiated by the government, among them a cut in the VAT rate and in electricity prices, and the abolition of the television license, which cumulatively depressed prices by 1.7% in the past year. "Discounting these effects, inflation was 0.8%, which is still below the target range," Flug said. The Bank of Israel Monetary Committee estimates that the bank's expansionary monetary policy will return inflation to within the target range within the time allowed by the law (two years).
Flug said that since the last change in the interest rate, the effective exchange rate of the shekel had appreciated by 2.1% against the currencies of Israel's main trading partners. She admitted that the current level of the shekel was "high in relation to the level that, according to the various estimates, represents equilibrium in accord with the basic forces." In its attempt to stop the appreciation of the shekel, the Bank of Israel bought $2.1 billion during the fourth quarter.
On the real estate market, Flug said, "The rate of mortgage taking remains very high, and the Bank of Israel continues to monitor it closely. Although the rise in prices continues, the growth in construction also continues, and that is a positive development that can be expected to have an effect on the upward pressures on home prices."
Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2015
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