Israel: Bank of Israel holds policy rate steady in February
February 27, 2017
At its 27 February monetary policy meeting, the Bank of Israel (BoI) left the policy rate unchanged at 0.10%, in line with market analysts’ expectations and despite better-than-expected economic growth. The rate has been held at 0.10% since February 2015.
The BoI stated that the Israeli economy continued to improve in Q4, partly due to “atypically” strong growth in demand for vehicles ahead of the implementation of new green taxes. Excluding this extraordinary event, private and public consumption growth both slowed down. The Composite State of the Economy Index rose at a slower pace in January from a month earlier and signaled that outsize growth is not expected through Q1 2017. The Bank noted that the labor market remained very positive in January, though the Purchasing Managers Index and Consumer Confidence Index dropped.
Regarding price developments, the BoI stated that inflation jumped to 0.1% in January following more than two years of declining consumer prices. The Bank, however, assigned the swing to short-term trends in both energy prices and the dissipating effect of administrative price cuts. The Bank noted, however, that medium- and long-term inflation expectations are within the Bank’s target range of 1.0–3.0%.
Considering the global economic environment, the BoI continues to see activity expanding at a moderate pace. While the Bank expects two rate hikes by the U.S. Federal Reserve this year, it noted that inflation hovered near its target ranges in most markets, though in both Europe and Japan monetary policy remains very accommodative. Political uncertainty across most major economies will remain a source of downside risk for the economy in the short-term.
The next monetary policy decision will be published on 6 April.
Author: Christopher Thomas, Economist