Israel Monetary Policy December 2016

Israel

Israel: Bank of Israel leaves policy rate unchanged in December

December 26, 2016

At its 26 December 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 the Israeli economy continues to grow at a healthy rate. Monthly indicators, such as the Composite State of the Economy Index, the Purchasing Managers’ Index and consumer confidence have all been pointing to steady or stronger activity. The bright picture has been underscored by a robust labor market, with the employment rate and the vacancy rate remaining at high levels. In line with the upbeat data, the BoI staff updated their macroeconomic forecasts. The Bank now forecasts GDP to increase 3.2% in 2017 (previous forecast: 3.1% year-on-year). For 2018, the economy is seen expanding at a broadly steady rate of 3.1%.

Regarding price developments, the Bank stated that consumer prices decreased at an annual rate of 0.3% in November, which mirrored October’s reading. Inflation expectations for the short and medium term have fluctuated in recent weeks and are now slightly lower than at the last monetary policy meeting. The BoI staff also updated their inflation forecasts and now foresee the annual price change reverting back into the target range of 1.0-3.0% in the fourth quarter of 2017.

According to the Bank, the global economy remains sluggish and downside risks to growth have increased, especially as political developments could drag down global trade volumes. Regarding the currency, the Bank highlighted that the shekel appreciated against the dollar and the euro over the course of 2016, which weighs on external demand.

The next monetary policy decision will be published on 23 January.

FocusEconomics Consensus Forecast panelists expect the monetary policy rate to end 2017 at 0.34%. For 2018, panelists see the policy rate ending the year at 1.35%.


Author: Marlène Rump, Senior Data Analyst

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Israel Monetary Policy December 2016 1

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


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