Israel Monetary Policy May 2019

Israel: Bank of Israel leaves policy rate unchanged in May amid stronger shekel

At its 20 May meeting, the Monetary Committee of the Bank of Israel (BoI) kept the interest rate unchanged at 0.25%, as had been widely expected by market analysts.

The Bank’s decision to stay put was driven in significant part by the substantial appreciation of the shekel so far this year, which in the Bank’s view “is delaying the continued increase of the inflation rate toward the midpoint of the [1.0%-3.0%] target”. Any rate hike would have risked exacerbating this situation, particularly given more dovish stances by other central banks. Moreover, the BoI highlighted that global economic risks had risen in the context of the escalating U.S.-China trade dispute, which warranted ongoing accommodative monetary policy.

The Committee reiterated its guidance that future tightening would be “gradual and cautious” in order to ensure inflation stabilizes around the midpoint of the target range. On balance, the majority of our panelists continue to see a rate hike later this year in order to build policy space. However, some panelists see rates unchanged against a backdrop of mild inflation.

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