Monday, August 27, 2012

Israel keeps rate steady, growth forecast to be trimmed

    The Bank of Israel left its benchmark interest rate unchanged at 2.25 percent, as expected, as the economy continues to expand at its recent pace and inflation remains within the bank's target range.
    But global risks remain high and this could affect Israel's economy, the central bank cautioned, adding it expected to trim its growth forecast next month.
    "The level of economic risks from around the world, due to the developments in Europe, remains high—leading to concerns of negative effects on the domestic economy," the Bank of Israel said in a statement, adding:
   "Second quarter macro figures which became available this month indicate continued deterioration in the state of the economies in the eurozone, the UK, Japan, and emerging markets. In contrast, there was a slight improvement in US economic activity this month."
    The Bank of Israel cut interest rates twice this year for a total cut of 50 basis points. Rates have been on an easing path since July 2011 when they were cut from 3.25 percent.

    Consumer price inflation rose slightly in July to an annual rate of 1.4 percent from 1.0 percent in June due to higher housing costs. On a seasonally adjusted basis, the bank said inflation has been running at an annual rate of 0.9 percent, below the bank's target of 1 to 3 percent.
    Inflation expectations have risen recently, the bank said, due to higher commodity and energy prices along with changes in indirect taxes.
    Israel's economy expanded by an annual 3.1 percent in the second quarter, down form 3.3 percent in the first quarter, and the bank said it was likely to trim its growth forecast in September from June's forecast for 2012 GDP growth of 3.1 percent. 
    "A continued trend of moderation in world trade is liable to lead to a decline in the economy's growth rate. At the same time, the recent weakness of the shekel is expected to aid the economy in dealing with the negative developments abroad which are expressed in reduced demand for Israeli exports," the bank said.


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