Israel: Bank of Israel keeps policy rate unchanged at 0.25%
November 24, 2014
At its 23-24 November monetary policy meeting, the Bank of Israel (BoI) decided to keep the policy rate unchanged at 0.25%, in line with market expectations.
In its accompanying statement, the BoI pointed out that it expects the global economy to continue growing at a moderate pace, mainly driven by solid economic growth in the United States. The Euro area’s economy is expected to remain subdued, while a contraction in the Japanese economy and sluggishness in China are likely to negatively impact global growth. On the domestic front, the Bank pointed out that the economy contracted in seasonally adjusted annualized terms (SAAR) in the third quarter as a result of the military conflict in the Gaza region. Investment and exports deteriorated during Q3, although they were partially offset by better performance in private consumption. According to the Bank, recent indicators pertaining to industrial production, trade and services pointed to a recovery in economic activity in October. Moreover, the weakening of the shekel against the US dollar in November is expected to support a recovery in exports going forward.
Regarding price developments, the consumer price index recorded a 0.3% annual decline in October for the second consecutive month. As a result, the index is still below the Central Bank’s target of between 1.0% and 3.0%. The BoI also pointed out that inflation expectations will remain subdued in the short and medium terms, mainly due to the expected impact of a reduction in electricity and water prices in January 2015.
Finally, the Bank commented that, “the Monetary Committee is of the opinion that the effects of the recent interest rate reductions, which brought the interest rate to a level of 0.25 percent, have not yet been fully reflected in activity and in inflation, and in light of that decided to keep the interest rate unchanged this month as well.”
Author: Cecilia Simkievich, Economist