Israel: Bank of Israel keeps policy rate unchanged at 0.25%
December 29, 2014
At its 29 December monetary policy meeting, the Bank of Israel (BoI) decided to keep the policy rate unchanged at 0.25% for the fourth consecutive month.
In its accompanying statement, the BoI pointed out that global economic growth will continue to be driven mainly by growth in the United States, while the economies of the Euro area, Japan and other emerging markets are expected to remain sluggish. On the domestic front, the Bank pointed out that, after contracting at a seasonally adjusted annualized rate (SAAR) of 0.4% in the third quarter, the economy has been showing signs of a moderate but steady recovery. As the Bank stated, “…the Composite State of the Economy Index continues to increase at the moderate rate that has characterized it since the beginning of the year.” Moreover, the Bank stated that the continued weakening of the shekel against the US dollar is expected to support an improvement in exports and contribute to the inflation rate returning to within the Central Bank’s target of between 1.0% and 3.0%.
Regarding price developments, the consumer price index recorded a 0.1% annual decline in November, which was up from the 0.3% drop recorded in October, but still far below the Central Bank’s target. Despite the low inflation figures, the BoI stated that inflation expectations—excluding the expected impact of low oil global prices—are gradually nearing the lower bound of the inflation rate target.
Finally, the Bank commented that, “the Monetary Committee is of the opinion that the current level of the interest rate supports the continuation of the recovery in economic activity, and the return of inflation to within the target range.”
Author: Cecilia Simkievich, Economist