Israel Monetary Policy February 2019

Israel: Central Bank stands pat in February

At its 25 February meeting, the Monetary Committee of the Bank of Israel kept the interest rate unchanged at 0.25%, as widely expected by market analysts. The Committee also reaffirmed its dovish stance, suggesting that the next rate hike could be some time away.

The Bank’s decision was chiefly underpinned by inflation that has remained below the lower bound of the 1.0%–3.0% target range. In fact, the 12-month average inflation rate has not breached the 1.0% mark since September 2014, and the Bank expects inflation to remain suppressed in the coming months. Although robust economic growth, which firmed up in the fourth quarter of last year, has not significantly propped up headline inflation, core inflation—which excludes more volatile items—came in at 1.4% in January, a multi-year high. This likely led the Bank to revise its medium-term and long-term inflation expectations upwards “toward the midpoint of the target” range. Nevertheless, the inflation outlook is subject to downside risks stemming from moderating global growth and currency movements. Of particular note, the Israeli shekel strengthened markedly since the last monetary policy meeting in January, and the Committee stated that if “the appreciation continues, it could delay the inflation rate’s rise toward the midpoint of the target”.

The Committee’s dovish tone was little changed in February. The Committee said “the rising path of the interest rate in the future will be gradual and cautious” in order to stabilize inflation around the midpoint of the Bank’s target range and to continue supporting economic activity. The next Monetary Committee meeting is scheduled for 8 April.

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