Israel Monetary Policy

Israel

Israel: Bank of Israel keeps policy rate on hold at 0.10% in August

August 24, 2015

At its 24 August monetary policy meeting, the Bank of Israel (BoI) decided to keep the policy rate unchanged at 0.10% as markets had expected. This is the fourth consecutive meeting in which the Bank has decided to maintain the policy rate on hold.

The BoI commented that recent economic data point to a slight deceleration of the economy in the second quarter mainly due to a decline in exports of goods and services and a contraction in fixed capital formation. In July, the consumer confidence indices compiled by the Central Bureau of Statistics and Bank Hapoalim recorded a slight decline compared to the previous month. Regarding the labor market, the Bank commented that the unemployment rate is low and that the job vacancy rate is high. According to the BoI, the service sector continues to be the main contributor to employment growth.

In July, consumer prices fell 0.3% annually, which was up from the 0.4% drop seen in the previous month. There was a significant increase in the prices of fruit and vegetables due to a seasonal effect. However, that was not enough to compensate for the seasonal drop in prices for clothing and footwear. The annual variation in consumer prices remains well below the Central Bank’s inflation target of 1.0% to 3.0%. The Bank added that, “short-term inflation expectations declined sharply this month, against the background of decreases in energy and commodity prices in the past two months and the scheduled reduction in electricity prices; expectations are below the lower bound of the target range.”

FocusEconomics Consensus Forecast panelists expect the base rate to end 2015 at 0.68%. For 2016, panelists see the policy rate ending the year at 1.69%.


Author:, Senior Economist

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Israel Monetary Policy August 2015

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


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