The Bank of Israel (BOI), which cut its rate by 15 basis points in February to counter the negative impact on exports and inflation from an appreciation of the shekel, said the shekel had strengthened by about 3 percent agains the dollar between March 22 and April 24 and 1.3 percent against the euro.
Today the shekel was quoted at 3.89 to the dollar, largely unchanged from 3.90 at the end of 2014 but weaker than the 3.84 that it hit on Feb. 22.
Year-to-date, the BOI added there had been an effective appreciation of 3.7 percent in the shekel against the background of accommodative monetary policy in several major economies and a decline in the projected growth rate of world grade and continued appreciation "are liable to weigh on growth of exports and of the tradable sector.
Data for the first quarter of the year "point to a continuation of the moderate growth rate" of the last two years, the BOI said, adding that goods exports rose by 3.3 percent in March but was down 0.9 percent in the first quarter in U.S. dollar terms when disregarding the impact of work disruptions at Israel Chemicals and "atypical" patterns in the export of aeronautics.
Israel's consumer price inflation rate remained at a negative 1.0 percent in March - the seventh consecutive month of deflation - with the BOI saying short-term expectations were near, or slightly below, the lower bound of the bank's 1-3 percent target range. Longer-term expectations, however, remain stable around the midpoint of the range.
The Bank of Israel issued the following statement with its main considerations for its decision:
"The main considerations behind the decision
The decision to keep the interest rate for May 2015 unchanged at 0.1 percent is consistent with the Bank of Israel's monetary policy, which is intended to return the inflation rate to within the price stability target of 1–3 percent a year over the next twelve months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel and in the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.
The following are the main considerations underlying the decision:
v The CPI for March increased by 0.3 percent, led by fuel prices and by the housing component. The rate of inflation as measured over the past 12 months was negative 1.0 percent. Short-term inflation expectations from various sources are near the lower bound of the inflation target range, or slightly below it. Longer-term expectations remained stable around the midpoint of the target range.
v Indicators of economic activity for the first quarter point to the economy continuing to grow at the moderate rate of the past two years. Companies Survey data support this assessment. The Composite State of the Economy Index increased by 0.4 percent in March, and tax revenues increased. Net of extraordinary effects, goods exports increased by 3.3 percent in March, and declined by 0.9 percent in the first quarter, in dollar terms.
v The IMF revised its growth forecasts for Europe and Japan upward, and lowered its projections for US growth and world trade volume. There are signs of recovery in current eurozone data, and some of the disappointing data in the US reflect one-off factors. Market expectations indicate that the date for liftoff of the federal funds rate has been pushed off.
v From the monetary policy discussion on March 22, 2015, through April 24, 2015, the shekel strengthened by 3 percent against the dollar, and appreciated by 1.7 percent in terms of the nominal effective exchange rate. For the year to date, there has been an effective appreciation of 3.7 percent in the shekel, against the background of accommodative monetary policy in several major economies, among other reasons. A decline in the projected rate of world trade growth and continued appreciation are liable to weigh on growth of exports and of the tradable sector.
v The increase in home prices continues, and new mortgage volume remains elevated. The number of transactions moderated slightly in February, among investors as well.
The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets. The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.
The minutes of the monetary discussions prior to the interest rate decision for May 2015 will be published on May 11, 2015.The decision regarding the interest rate for June 2015 will be published at 16:00 on Monday, May 25, 2015."