Israel: Bank of Israel keeps policy rate unchanged at 0.10% in June
June 27, 2016
At its 27 June monetary policy meeting, the Bank of Israel (BoI) decided to leave the policy rate unchanged at 0.10%. The decision met market expectations. This was the fourteenth consecutive meeting in which the Bank decided to keep the policy rate on hold.
The BoI commented that second-estimate GDP figures confirm that the economy decelerated in the first quarter. Growth was supported by robust private consumption, which was fueled by higher wages and low interest rates. The labor market remained robust and the latest Labor Force Survey shows that the unemployment rate inched down in May, approaching full employment. The continued drop in exports is set to moderate as some factors negatively affecting the external sector wear off. The Bank also commented that the currency had remained broadly stable against the dollar, having only experienced a 0.4% depreciation against the U.S dollar since the previous meeting in May.
This month, the BoI revised down its GDP projection for this year due to the economic deceleration in the first quarter. The Bank now expects the economy to expand 2.4%, which is down from the 2.8% previously expected. For next year, the Bank downgraded its growth projections from 3.0% to 2.9%.
Regarding consumer prices, the Bank noted that they had increased over the previous two months, albeit still at a rather sedate pace, with signs of an acceleration amid soaring wages and strong private consumption growth. In the Bank’s view, these factors should help push inflation back to within its target range of 1.0% to 3.0% within a year.
However, the Bank sees the uncertainty linked to the outcome of the British referendum as posing increased risks to inflation and growth. Moreover, the Bank provided guidance to the markets and added that, “the Bank of Israel interest rate is expected to remain at 0.1 percent during the coming year, and to increase to 0.25 percent toward the end of 2017”
Author: Christopher Mc Innes, Economist