The Bank of Israel Monetary Committee headed by Governor Karnit Flug is keeping its lending rate for March at the historic low of 0.1%. The rate has been unchanged since March 2015. In explaining today's decision, the Monetary Committee stated that, "The inflation environment remains below the target, but there has been some increase in inflation expectations for the short and medium terms. In the coming months a temporary decline in the annual inflation rate is expected. The depreciation that occurred in the past month, to the extent it persists, as well as the wage increase in the economy, will support the return of inflation to the target range."
On Israel's economic performance, the Bank of Israel said, "Economic activity continues to expand in line with the potential growth rate. Growth in 2017 was more balanced. Against the background of the rapid growth in world trade, there was positive growth in goods exports, despite the appreciation, and services exports increased at a solid pace. In contrast, investment in residential construction has declined for the past three quarters. Labor market data continue to indicate a high level of activity in a tight labor market. Recent indicators support the assessment that the growth of economic activity is continuing in the first quarter of 2018."
On the global economy, the Bank of Israel added, "The improvement in the global economy is solidifying, and forecasts for growth and world trade continue to be revised upward. The correction in global equity markets has halted as of now. In the US, the federal funds rate is expected to continue to increase, while most central banks continue to adopt accommodative monetary policy, but financial markets are pricing in a somewhat less accommodative future policy path."
Turning to the shekel, the Bank of Israel said, "Since the last interest rate decision, the shekel has weakened by 3.1% in terms of the effective exchange rate, and by 1.6% against the dollar. In January, the Bank of Israel intervened in the foreign exchange market, buying $1.8 billion."
Finally on housing prices, the Bank of Israel commented, "Housing market data continue to indicate a slowing of activity. There were declines in home prices according to the last three monthly readings."
Published by Globes [online], Israel business news - www.globes-online.com - on February 26, 2018
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