Central Bank Holds Interest Rate Steady, Cites Positive Economic Picture

The Bank of Israel kept the interest rate unchanged for February at 0.1 percent, and cited an overall picture of positive economic indicators, Globes reported on Monday.

The interest rate has been unchanged since it was cut to a historic low of 0.1 percent in March 2015.

In citing the reasons for keeping the interest rate unchanged, the Bank of Israel stressed that “the CPI for December was unchanged, in line with expectations. The inflation rate was negative in 2016 but is on an upward trend. The direct effect of administrative price reductions is dissipating, and energy prices remained unchanged, as measured over the preceding 12 months. The low rate of inflation reflects the effect of the appreciation, and possibly structural change and enhanced competition in the economy. Short-term inflation expectations are below the target, while longer term expectations derived from the capital market remain anchored near the midpoint of the target range.”

There was good news about economic growth, as well: “The picture of real economic activity remains positive. The Composite State of the Economy Index increased by 0.45 percent in December, and the Net Balance in the fourth quarter Companies Survey indicates high growth of business sector product. Foreign trade data indicate a recovery of manufacturing exports, after a prolonged decline since 2014. The picture conveyed by the labor market remains very positive, and the increase in employment and wages was led by the business sector in the past year.”

Regarding the shekel, the Bank noted, “From the monetary policy discussion on December 25, 2016, through January 20, 2017, the shekel strengthened by 0.2 percent against the dollar, while it depreciated by 0.3 percent in terms of the nominal effective exchange rate. The shekel has appreciated by 6.2 percent over the past 12 months in terms of the nominal effective exchange rate, against the background of a 6.7 percent appreciation vis-à-vis the euro. The level of the effective exchange rate continues to weigh on the development of goods exports.”

Home prices continued to baffle analysts. “Home prices continue to rise rapidly, despite a high level of unsold new homes, a decline in monthly mortgage volume, and a continued increase in mortgage interest rates.”