Israel Monetary Policy August 2018

Israel: Bank of Israel stands pat in August

On 29 August, the Monetary Committee of the Bank of Israel held fire and kept the interest rate steady at the historic low of 0.10%, where it has been since February 2015.

The decision was in line with market expectations and followed an increase in core inflation, which reached 1.0% in June and July—the highest level in over four years. Headline inflation has also risen in recent months, boosted by higher energy prices and the weakening of the Israeli currency against the U.S. greenback, and the Bank expects inflation to pick up further going forward on the back of higher wages, robust private consumption and a loose fiscal policy. However, the Bank of Israel felt it was premature to begin tightening its monetary stance, given that price pressures are still mild and one-year inflation expectations are only just within the Bank’s 1.0%–3.0% target range.

The Bank restated its commitment to a loose monetary policy for “as long as necessary in order to entrench the inflation environment within the target range”. In addition, the Bank will pay close attention to developments in the domestic and global economy, noting that world trade is being affected by trade tensions and financial market volatility in emerging markets. Last month, the majority of FocusEconomics Consensus Forecast panelists did not expect a rate hike before the end of the year, and recent inflation data is unlikely to significantly alter that view. A majority of panelists foresaw at least one rate hike by the end of H1 2019.

The Bank’s next monetary policy announcement is scheduled for 8 October.

Israel Interest Rate Forecast

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