Monday, October 28, 2013

Israel holds rate steady as shekel appreciates

    Israel's central bank kept its policy rate steady at 1.0 percent, as widely expected after three cuts earlier this year, saying future rate moves depend on inflation, economic growth, the monetary policy of major central banks and the exchange rate of the shekel.
    The Bank of Israel (BOI), which has cut its rate by 75 basis points this year to help stem the rise in the shekel and counter weaker economic growth, noted that the appreciation of the shekel had come to a halt in the last month, weakening by 1.5 percent in terms of its effective exchange rate and by 0.7 percent against the U.S. dollar while most other currencies had strengthened.
    The shekel has risen steadily against the U.S. dollar this year, hitting a high of 3.49 to the U.S. dollar on Sept. 19 compared with 3.73 at the end of last year. But since Sept. 19, the day after the U.S. Federal Reserve delayed its tapering of asset purchases, the shekel has risen and was trading at 3.53 today.
    Among the main considerations behind its decision to maintain its interest rate, the BOI said that inflation remains within its 1-3 percent target range of and below the midpoint. Israel's inflation rate was steady at 1.3 percent in September from August.
    The bank also said that economic activity continued at a rate that was slightly below 3 percent, excluding natural gas output, although several indicators point to a slowdown in the third quarter, primarily in exports and industrial production.
    It also referred to its three recent rate cuts, the International Monetary Fund's reduced global growth forecasts and the Federal Reserve's delayed tapering of its bond purchases.
    In addition, the BOI said the number of housing transactions continues to decline though home prices continue to rise along with a high volume of new mortgages.
    The BOI's decision to maintain its policy stance was the first policy decision since Karnit Flug took over as permanent governor. She had served as interim governor since June when Stanley Fischer and was formally approved as governor by the Israeli government on Sunday.
    On Oct. 20 Prime Minister Benjamin Netanyahu's nominated Flug as Fischer's successor, ending months of uncertainty and speculation after two previously nominated candidates withdrew out of concern that past scandals would either prevent their appointments or taint their work at the BOI.


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