The Bank of Israel Monetary Committee headed by Governor Dr. Karnit Flug has kept the interest rate for April unchanged at 0.1%. Last month the Bank of Israel lowered the rate by 15 basis points to its historic low of 0.1%.
Analysts at HSBC had predicted that the Bank of Israel would lower the interest rate into negative territory and possibly launch a quantitative easing program but such actions have not materialized.
The Bank of Israel said, "The bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market."
The Bank of Israel said that the main considerations underlying its decision were that "The rate of inflation as measured over the past 12 months was negative 1%, impacted on by declines in prices of fuel, electricity, and water. According to the Research Department’s staff forecast, as well as the average projection of private forecasters, inflation is expected to return to within the target range, near its lower bound, in the next 12 months; the projected rate of inflation based on banks’ internal interest rates remains below the target range. Medium-term inflation expectations declined slightly this month, and expectations for longer terms are at the midpoint of the target range.
The Bank of Israel added, "Indicators of real economic activity show a mixed picture in the first quarter: some weakness in exports is apparent, the Composite State of the Economy Index increased by 0.2% in February, and preliminary data from the Companies Survey indicate continued growth at the moderate rate that characterized it last year. Labor market indicators point to continued improvement."
On the shekel the Bank of Israel said, "From the monetary policy discussion on February 22, 2015, through March 20, 2015, the shekel weakened by 5% against the dollar, and strengthened by 1% against the euro. The shekel weakened by 1.9% in terms of the nominal effective exchange rate. For the year to date, there has been an effective appreciation of 2.1% in the shekel.
On real estate prices the Bank of Israel said, "Home prices continue to increase, new mortgage volume remains elevated, and in January there was an increase in investors’ share of total transactions. Various indicators point to growth in the supply of homes."
Published by Globes [online], Israel business news - www.globes-online.com - on March 23, 2015
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