Citing Uncertainties, Bank of Israel Leaves Interest Rate Alone

YERUSHALAYIM -

A slowdown in economic growth of uncertain extent has persuaded the Bank of Israel to leave the interest rate for June unchanged at 0.75%, Globes said on Monday.

Analysts had been divided over whether the interest rate would remain unchanged or be cut by 0.25% due to the slowdown, but the BOI Monetary Committee, headed by governor Dr. Karnit Flug, decided to hold off on a rate cut because of the slowed conditions.

The Bank of Israel noted the main considerations behind its decision:

“The Consumer Price Index increased by only 0.1% in April, markedly lower than expectations, and the rate of inflation over the previous 12 months was 1%, the lower bound of the target range. This measure of the inflation rate is expected to decline in the coming months, to below the lower bound of the target range, though expectations for 1-year ahead are within the target range.

“Indicators of real economic activity, which became available this month, point to more moderate growth than assessed in the previous month, though the extent of the moderation is uncertain. The first estimate of first-quarter data signals a slowdown in growth, due to a contraction of private consumption and fixed capital formation, while labor market data continue to indicate growth in employment and reduced unemployment, and there was improvement in indices of consumer confidence and of expectations of activity. Signs of moderation are also seen in Composite State of the Economy Index data, including goods exports.”

The bank also mentioned “disappointing first quarter growth data in the U.S. and in Europe,” and continued price rises in the domestic housing market, their annual rate of increase remaining around 6.7%.

However, unemployment continued to fall. The unemployment rate fell in April to 5.6%, from 5.7% in March and 5.9% at the beginning of 2014.

This is one of the lowest rates of unemployment in the OECD. Furthermore, the new Central Bureau of Statistics data indicate that unemployment is falling without affecting the rate of participation in the workforce, which continues to be fairly high, at 64%.

According to the figures, core unemployment (that is, unemployed people aged 25-64 excluding career army personnel and students) remains almost unchanged, at 5.2%. The rate of participation in the workforce of people in the 25-64 age group was 80% in April.

The rate of people in full-time employment is almost unchanged, at 77%.