Israel Monetary Policy January 2019

Israel

Israel: Central Bank stands pat in January

January 7, 2019

At the first Monetary Committee meeting under the governorship of Amir Yaron on 7 January, the Bank of Israel held fire and kept the policy rate at 0.25% after it had raised the interest rate by 15 basis points in November. The decision was in line with market expectations and was taken on the grounds of stabilizing inflation near the lower bound of the Bank’s target range amid a moderating, but nonetheless more sustainable, pace of economic growth and heightened global economic risk stemming from factors such as trade protectionism.

The Bank noted that inflation has been stabilizing near the lower bound of the 1.0%–3.0% target range, and expects the rate to remain steady in the months ahead before picking up pace. Committee members anticipate the inflation rate returning towards the midpoint of the inflation target due to “continued wage increases” as well as “the economy being around full employment”. The unemployment rate stood at 4.1% at the end of November, thus remaining near a multi-year low.

Subsequently, continued robust domestic demand—driven by private consumption, fueled by the tight labor market—should buttress economic activity “at a pace […] around the long-term path”, according to the Committee. Moreover, data on job vacancies and wages “support the assessment that the economy is around full employment, thus creating a supply constraint”. While low unemployment bodes well for continued private consumption growth, it could prove to be a bottleneck for further growth in output as companies find it increasingly difficult to hire qualified staff.

Meanwhile, the external environment appears to be increasingly fragile as global growth momentum moderates amid heightening geopolitical risks, chiefly stemming from the trade spat between the world’s two largest economies. According to the Committee, such downside risks “are trickling down to the business activity of leading corporations”.

Although hinting at possible future rate hikes, the Bank struck a slightly more dovish tone in its press release. Summarizing this position, the Committee assessed “that the rising path of the interest rate in the future will be gradual and cautious, in a manner that supports a process at the end of which inflation will stabilize around the midpoint of the target range, and that supports economic activity.”

The next Monetary Committee meeting is scheduled for 25 February.

Israel Interest Rate Forecast


FocusEconomics Consensus Forecast panelists see the interest rate ending 2019 at 0.69%. For 2020, our panel sees the interest rate ending the year at 1.32%.


Author:, Economist

Sample Report

Looking for forecasts related to Monetary Policy in Israel? Download a sample report now.

Download

Israel Monetary Policy Chart


Israel Monetary Policy January 2019

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


Israel Economic News

More news

Search form