Israel: Bank of Israel keeps policy rate unchanged in September
September 26, 2016
At its 26 September monetary policy meeting, the Bank of Israel (BoI) decided to leave the policy rate unchanged at 0.10%, in line with market expectations. The rate has been held at 0.10% since February 2015.
The BoI stated that annual growth in Q2 had been revised upward under a second estimate, thus confirming the healthy acceleration over the first quarter. According to the available data for the third quarter, the economy should have grown at a steady rate. The labor market remains healthy, with low unemployment, a high vacancy rate and growing real wages.
Against this backdrop, the Bank’s research department updated its growth projection for this year and next. It now expects GDP to grow 2.8% this year, which is up 0.4 percentage points from their previous forecast. For 2017 the Bank upgraded the forecast from 2.9% to 3.1% of annual growth.
Regarding price developments, the Bank noted that consumer prices continued to decrease in August (-0.7% year-on-year) and that the annual change was still well below the lower end of the 1–3% target. Further, the Bank noted that short-term inflation expectations had inched down since the last meeting but that there was no significant change in medium- and long-term inflation expectations.
The Monetary Authority commented that the shekel had strengthened 0.2% against the U.S. dollar since the previous meeting on 28 August, suggesting that the months-long appreciation has come to a halt, though at a high level. The next interest rate decision is scheduled for 27 October.