Israel: Bank of Israel holds its fire in October
October 8, 2018
On 8 October, the Monetary Committee of the Bank of Israel stood pat and kept its interest rate steady at the historic low of 0.10%, where it has been since February 2015.
The decision, widely expected by market analysts, came on the back of a largely unchanged inflation outlook “despite slightly lower than expected recent CPI readings”. The committee expects inflation to pick up going forward, stating that “forward expectations for medium terms are entrenched within the target range, and the expectations for longer terms are anchored around the midpoint of the target”. Moreover, the committee judged a sharp appreciation of the shekel as the main risk to the inflation outlook. Hiking interest rates would have made the shekel more attractive and thus risked such an appreciation. In addition, the current monetary stance is supporting economic growth.
The Bank reaffirmed its pledge to a loose monetary policy for “as long as necessary in order to entrench the inflation environment within the target range”, while paying close attention to developments in the domestic and global economy. With inflation set to remain subdued going forward, the BoI is likely to only gradually increase rates, with the first hike likely to come in H1 2019.
The Bank’s next monetary policy announcement is scheduled for 26 November.
Israel Interest Rate Forecast
FocusEconomics Consensus Forecast panelists see the interest rate ending 2018 at 0.14%. For 2019, our panelists see the interest rate ending the year at 0.69%.
Author: Jan Lammersen, Economist