Israel: Bank of Israel leaves policy rate unchanged in January
January 23, 2017
At its 23 January monetary policy meeting, the Bank of Israel (BoI) decided to leave the policy rate unchanged at 0.10%, in line with market expectations. The economy is growing quickly, but as Israel saw the second consecutive year of contracting consumer prices in 2016 this left room for the BoI to keep the rate at 0.10%, where it has been since February 2015.
The BoI stated that the Israeli economy grew 3.8% in 2016 on the back of surging private consumption and fixed investment. The weak spot among the annual growth rates was exports, which were subdued by slower world trade and a relatively strong shekel against major currencies. For Q4, no detailed GDP data has been released yet, but monthly indicators, such as the Composite State of the Economy Index, the Purchasing Managers’ Index and consumer confidence, all closed the year on a very positive note. The labor market remained favorable in December. For 2016 as a whole, the strong growth in employment was buttressed by robust hiring from the business sector.
Regarding price developments, the Central Bank stated that consumer prices had decreased at an annual rate of 0.2% in December. Consequentially, 2016 marked the second year in a row with falling prices. According to the BoI, the result was dragged down by lower prices for primary consumer goods, transport and communication, while higher prices for services such as housing and education eased the pressure to an extent. Inflation expectations for the short and medium term are broadly unchanged since the last monetary policy meeting.
Considering the global economic environment, the BoI continues to see activity expanding at a moderate pace. While the medium-term outlook for global trade volume improved, political uncertainty in the U.S. and Europe increased the downside risks.
The next monetary policy decision will be published on 27 February.