Israel Monetary Policy July 2018

Israel

Israel: Bank of Israel holds its fire in July

July 9, 2018

On 9 July, the Monetary Committee of the Bank of Israel decided to keep its interest rate steady at a historic low of 0.10%, where it has been since February 2015. The decision was in line with market expectations.

The Bank’s decision was taken as inflation remains low, but is gradually creeping closer to the target of 1.0%?3.0%. Inflation came in at 0.5% in May, the highest reading since May 2017. Moreover, the Bank noted that inflation expectations have increased thanks to the loose monetary stance, with one-year inflation expectations now near or slightly above 1.0%. Furthermore, the Bank noted that the economy continues to grow robustly, with a tight labor market and increasing wages likely to support private consumption.

In its communiqué, the Bank reiterated its commitment to accommodative monetary policy for “as long as necessary in order to entrench the inflation environment within the target range”. Moreover, the Bank will continue to monitor developments in the domestic and global economy, noting that the risk of an escalation in global trade tensions has increased in recent weeks.

The Bank’s next monetary policy meeting is scheduled for 29 August. Looking ahead, the majority of FocusEconomics Consensus Forecast panelists do not expect a rate hike before the end of the year. That said, a small majority of panelists foresee at least one rate hike by the end of H1 2019.

Expecting inflation to remain low this year, FocusEconomics Consensus Forecast panelists forecast the long-awaited tightening cycle to begin no earlier than the fourth quarter, with panelists currently seeing the interest rate ending 2018 at 0.14%. For 2019, our panelists see the interest rate ending the year at 0.66% as inflation moves to within the Bank’s target range.


Author:, Economist

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Israel Monetary Policy July 2018

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


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