Israel Monetary Policy September 2016


Israel: Bank of Israel keeps policy rate unchanged in September

At its 26 September monetary policy meeting, the Bank of Israel (BoI) decided to leave the policy rate unchanged at 0.10%, in line with market expectations. The rate has been held at 0.10% since February 2015.

The BoI stated that annual growth in Q2 had been revised upward under a second estimate, thus confirming the healthy acceleration over the first quarter. According to the available data for the third quarter, the economy should have grown at a steady rate. The labor market remains healthy, with low unemployment, a high vacancy rate and growing real wages.

Against this backdrop, the Bank’s research department updated its growth projection for this year and next. It now expects GDP to grow 2.8% this year, which is up 0.4 percentage points from their previous forecast. For 2017 the Bank upgraded the forecast from 2.9% to 3.1% of annual growth.

Regarding price developments, the Bank noted that consumer prices continued to decrease in August (-0.7% year-on-year) and that the annual change was still well below the lower end of the 1–3% target. Further, the Bank noted that short-term inflation expectations had inched down since the last meeting but that there was no significant change in medium- and long-term inflation expectations.

The Monetary Authority commented that the shekel had strengthened 0.2% against the U.S. dollar since the previous meeting on 28 August, suggesting that the months-long appreciation has come to a halt, though at a high level. The next interest rate decision is scheduled for 27 October.

FocusEconomics Consensus Forecast panelists expect the monetary policy rate to end 2016 at 0.11%. For 2017, panelists see the policy rate ending the year at 0.53%.

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Israel Monetary Policy Chart

Israel Monetary Policy September 2016 0

Note: Policy Rate in %.
Source: Bank of Israel (BoI).

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