BOI Keeps Interest Rate Down, Cites High Home Prices

Shimon B. Lifkin

YERUSHALAYIM – The Bank of Israel has decided to leave the interest rate for August unchanged, keeping it at an historic low.

The Monetary Committee, headed by Governor Dr. Karnit Flug, announced on Monday that the rate for August will stay at 0.1 percent, where it has been since March 2015.

The BoI cited its reasons: “The rate of increase in home prices remains elevated, and both the level of transactions and the volume of mortgages remain high. The stock of homes for sale continues to increase.”

Regarding market conditions, the Bank observed that “the inflation environment continues to increase moderately and the Consumer Price Index has increased in the past three months. Short-term inflation expectations remained stable this month after increasing in previous months, but they are still below the lower bound of the inflation target range. Medium and long-term expectations remain anchored within the target range.”

The bank was relatively sanguine on the issue of growth, which has been troubling economists for some time.

“Indicators of activity are in line with the assessment that the economy continues to grow at the rate that characterized recent years, led by private consumption and by industries focused on domestic activity.”

Its assessment did not retreat from recent downbeat reports on the high-tech sector, struggling to hold its leading place in the economy.

“The slowdown in manufacturing is concentrated at high-technology industries, and a trend of increase in services exports is becoming apparent.”

However, it noted that “the picture conveyed by labor market data continues to be positive, and there are signs that the economy is nearing full employment.”

The shekel remains a thorn in the side: “From the monetary policy discussion on June 26, 2016, through July 22, 2016, the shekel strengthened by 1.2 percent against the dollar. In terms of the effective exchange rate, the shekel appreciated by 1.7 percent, similar to the rate of appreciation over the past 12 months. The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector.”