Bank of Israel maintains interest at ¼%; aims to return rate to target

By Tali Rackner

Norfolk, Va., Sept. 22 – The Bank of Israel decided to maintain its interest rate at ¼%, according to a news release. This follows a 25 basis point reduction in the rate last month and a 25 bps reduction the month before.

The decision is consistent with the bank’s monetary policy, which is intended to return the inflation rate to within the price stability target of 1% to 3% percent per year over the next 12 months and to support growth while maintaining financial stability.

The bank reported that the Consumer Price Index for August declined by 0.1%, in contrast to forecasters’ projections for an increase of 0.2%, on average.

Inflation over the preceding 12 months was 0%, compared with 0.3% over the 12 months ended in July.

This month, seasonally adjusted one-year inflation expectations derived from the capital market remained at 1.1%, near the lower bound of the inflation target range, and two-year expectations declined slightly to 1.3%.

The shekel weakened by 1.6% this month and has depreciated by about 1.3% since the beginning of the year.

According to the bank, the global economic situation is uneven: recoveries are becoming established in the United States and the United Kingdom, but slowdowns continue in Europe and Japan, and data in China were disappointing. World trade is growing at a slow rate.

The Federal Reserve is still expected to increase the federal funds rate in the U.S. in the second half of 2015, while in Europe and Japan, monetary easing is apparently being enhanced.

Home prices increased by 6.8% in the last 12 months and the increase in the balance of housing credit continues. In addition, corporate bond funds are again showing net new investment, although at relatively low volumes. Spreads in that market continue to apparently indicate underpricing of risks.

The minutes of the monetary discussions prior to the interest-rate decision for October will be published on Oct. 6, and the decision for November will be published on Oct. 27.

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