Israel holds rate at 0.1% for April with mixed economic indicators

By Toni Weeks

San Luis Obispo, Calif., March 23 – The Bank of Israel decided to keep the interest rate at 0.1% for April, according to a press release. The decision follows a reduction in the rate by 15 basis points announced last month.

The bank stated that the move is consistent with its monetary policy, which is intended to return the inflation rate to within the price stability target of 1% to 3% a year over the next 12 months and to support growth while maintaining financial stability.

The rate of inflation over the past 12 months was negative 1%, impacted by declines in prices of fuel, electricity and water. Although private forecasters and the Research Department staff expect inflation 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 noted that the Research Department updated its macroeconomic forecast this month. According to the revised forecast, the inflation rate over the next four quarters will be 1.1%.

The Bank of Israel’s interest rate is expected to remain at 0.1% through 2015 and to begin to increase slowly in 2016, according to the revised forecast. GDP is expected to grow in 2015 by 3.2%, similar to the previous forecast, and to grow by 3.5% in 2016, as compared to 3% in the previous 2016 forecast.

Indicators of real economic activity have been mixed in the first quarter, with some weakness in exports apparent, the bank said. The Composite State of the Economy index increased by 0.2% in February, and preliminary data indicate continued growth at the same moderate rate as last year. Labor market indicators point to continued improvement as well.

According to the bank, the shekel weakened by 5% against the dollar and strengthened by 1% against the euro.

In terms of the nominal effective exchange rate, the shekel weakened by 1.9%. For the year to date, it has appreciated by 2.1%.

Various indicators point to growth in the supply of homes, as home prices continue to increase, new-mortgage volume remains elevated, and, in January, investors’ share of total transactions increased.

The bank noted that several additional central banks adopted monetary-easing measures this month, and the U.S. growth forecast was revised slightly downward. In Europe, an improvement in activity can be seen against the background of the accommodative monetary policy.

The minutes of the monetary discussions prior to the interest-rate decision for April will be published on April 6. The decision regarding the interest rate for May will be published on April 27.

© 2015 Prospect News.
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