Israel: Bank of Israel holds the interest rate firm in May
May 28, 2018
On 28 May, the Bank of Israel decided to keep the interest rate steady at its historic low of 0.10% amid subdued inflationary pressures. The decision was in line with market expectations. The interest rate has now remained unchanged for 34 consecutive monetary policy meetings; it was last cut in February 2015.
The Bank’s outlook on inflation changed slightly in May. It highlighted inflationary pressures are rising on the back of accommodative monetary policy but remain well below the target range. Although inflation rose in April to 0.4%, adding to the string of higher inflation readings through the start of 2018, it has yet to come in reach of the Bank’s 1.0%–3.0% target range. One-year inflation expectations increased in May, but inflation is still projected to stay below the lower bound of the target range. Inflation in the second year is expected, however, to come within the target range.
In the accompanying press release, the Bank reaffirmed its commitment to accommodative monetary policy amid subdued inflation. It also signaled that its accommodative stance would persist until inflation returns to within the target range. In April, bank officials reiterated expectations of a 15 basis-point rate hike in the fourth quarter of the year, which would bring the interest rate to 0.25%. That said, fewer than half of FocusEconomics panelists expect a first rate hike by the end of the year.
The Bank’s next monetary policy meeting of the year is scheduled for 9 July.
Israel Inflation Forecast
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 0.13%. For 2019, our panelists see the interest rate ending the year at 0.64% as inflation moves to within the Bank’s target range.