Monday, November 25, 2013

Israel maintains rate, future depends on inflation, shekel

    Israel's central bank held its benchmark interest rate steady at 1.0 percent, as expected, repeating that future moves in the rate depend on inflation, domestic and global economic growth, the monetary policies of major central banks and the shekel's exchange rate.
     The Bank of Israel (BOI), which has cut rates by a total of 75 basis points this year, most recently in September, said the main considerations behind its decision was the low inflation environment, a decline in economic growth in the third quarter, a very slight weakening of the shekel in the last month, very accommodative monetary policy in most major economies, weaker forecasts for global growth and a continued rise in house prices.
    "The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets, particularly in light of the continuing uncertainty in the global economy," BOI said.
    Israel's inflation rate jumped to a higher-than-expected annual rate of 1.8 percent in October from 1.3 percent in both September and August due to higher fruit and vegetable prices, clothing and footwear.
    Despite this rise, the BOI said the "inflation environment remains low" and there has been a decline in inflation expectations for the coming year. The BOI targets annual inflation of 1-3 percent.

    Israel's economy slowed in the third quarter due to weak manufacturing and exports, but the BOI said "initial indicators for the fourth quarter point to some recovery."
    Israel's Gross Domestic Product expanded by only 0.5 percent in the third quarter from the second for annual growth of 3.2 percent, down from 3.8 percent. The BOI has forecast growth of 3.6 percent this year and 3.4 percent next year.
    Since the BOI's previous policy meeting on Oct. 27, the shekel has weakened by some 0.9 percent against the U.S. dollar, a more moderate decline that most currencies against the dollar. Since the beginning of the year, the shekel's effective exchange rate is up by has 5.7 percent. It was quoted around 3.55 to the dollar today.


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