Israel Central Bank cuts interest rates by 25 bps on surprise fall in inflation

24th February 2014

Israel's central bank cut its benchmark interest rate by 25 basis points to 0.75 percent after a surprise fall in January inflation, pessimism among consumers and continued strength of the shekel.
    The Bank of Israel (BOI), which cut its rate by 75 basis points in 2013, said the decision to cut the rate was consistent with the bank's aim of entrenching inflation within a 1-3 percent range and it would use its tools to achieve this objective along with encouraging growth and employment while it would continue to keep a close watch on asset markets, including the housing market.
    Israeli consumer prices fell by 0.6 percent in January, higher than an expected 0.2 percent fall, pushing down the annual inflation rate to 1.4 percent from 1.8 percent in December. As a consequence,  private forecasters reduced their inflation projections to an average of 1.6 percent over the next 12 months while capital market's expectations were steady at 1.9 percent and inflation expectations derived from banks' own interest rates were unchanged at 1.4 percent.
    Private forecasters and market interest rates also indicated "some probability" of a cut in rates by the BOI over the next three months while expectations for a cut over the next year are lower and some forecasters even expect an interest rate increase, the central bank said.
    Since the beginning of the year, Israel's shekel has depreciated by almost 1 percent and immediately fell further after the rate cut, dropping to 3.517 to the U.S. dollar from 3.50 before the announcement.
    But since the start of 2013, the shekel has risen by 7.3 percent the bank said, despite the BOI's efforts to hold down the shekel's exchange rate by intervening in the foreign exchange market to help the country's exporters that account for some 40 percent of the economy.
    This year the BOI has targeted foreign exchange purchases of $3.5 billion, up from $2.1 billion in 2013, to help offset the impact of natural gas production on the exchange rate.
    Recent data show that Israel's economy is "growing at a moderate pace," with estimates showing that fourth quarter Gross Domestic Product expanded by an annual rate of 2.3 percent, down from 3.3 percent in the third quarter, with a turnaround in exports mainly to volatile pharmaceutical exports while exports from labour-intensive industries are at a virtual standstill, the BOI said.
    Various indicators of activity in January point to some recovery but consumer confidence indices continue to signal pessimism and there is a lack of growth in employment and wages in business.
    Israel's unemployment rate rose to 5.8 percent in December from 5.5 percent the previous month with real wages declining by 0.4 percent in the September-November period from June-August.
     Isreali home prices, which are not included in consumer prices, rose by an annual 8.1 percent in December, up from 7.9 percent in November, and the number of transactions hit its highest level since 1997 with the share of investors in transactions steady at around 22 percent, the central bank said.

Israel cuts rate by 25 bps on surprise fall in inflation - Central Bank News

Israel Central Bank maintains Interest rate, future depends on inflation, shekel - Central Bank News

25th November 2013

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

Israel maintains rate, future depends on inflation, shekel - Central Bank News

for more details log on to Bank of Israel website : http://www.bankisrael.gov.il/en/Pages/Default.aspx 

Israel Central Bank holds rate steady, keeps watch on housing market

Israel's central bank held its policy rate steady at 1.25 percent, as expected, in light of the shekel's steady exchange rate, inflationary expectations that are slightly below the midpoint of the central bank's target range and economic activity that is similar to the past two years.
     But the Bank of Israel (BOI) also noted that home prices had begun to rise again and mortgages continue to be taken out in large volumes so it would "keep a close watch on developments in asset markets, including the housing market."
    Last week the BOI continued its campaign to cool the Israeli housing market, unveiling draft guidelines that cap the share of mortgage repayments out of household income, limits the share of a loan that may have a variable interest rate and bans mortgages in excess of 30 years.
    In June banks granted some 5 billion shekels of new mortgages, up from a monthly average of 4.4 billion since the beginning of this year, and the housing component of the consumer price index rose by 1.0 percent in July, up from 0.3 percent in June, for an annual rise of 3.1 percent.
    This compares with a 0.3 percent rise in overall consumer price inflation in July from June for an annual rate of 2.2 percent, within the bank's target range of 1-3 percent.
    Last month the BOI had taken note of a slight decline in home prices in April-May but it had also said that it was too early to determine if that represented a change in trend.
   Inflationary expectations of private forecasters rose slightly to 1.9 percent for the next 12 months while expectations based on bank's internal interest rates eased to 1.5 percent and capital market prices showed unchanged expectations of 1.4 percent, the BOI said.
    Expectations for August inflation average 0.4 percent and expectations for the BOI's policy rate one year from now rose slightly to 1.3 percent.
    Gauges of economic activity in Israel are being boosted by the recent start of natural gas production, but excluding that effect, the BOI said the economy is expanding at a rate that is similar to the previous two years as higher domestic demand offsets the decline in exports.
    Initial estimates of second quarter growth shows Israel's Gross Domestic Product rising by an annual 5.1 percent, boosted by the start of gas production, with private consumption up by 6.7 percent while exports declined by 8.2 percent, excluding diamonds and start-up companies. In the first quarter, the economy expanded by 2.7 percent.
    In May the BOI cut rates twice to weaken the strong shekel, but since the bank's last policy meeting in late July, the shekel has remained largely stable, weakening 0.8 percent against the euro. The shekel's effective exchange rate has risen by 5.7 percent against the euro since the start of 2013.
   Globally, the BOI said advanced economies continue to show improvement compared "with moderation, and in some cases deterioration, in emerging economies."
    "Global capital markets operated under the shadow of concerns over the tapering process and there is still uncertainty about when the process will begin, and its strength, " the BOI said, adding that this uncertainty surrounding the Federal Reserve's quantitative easing policies is "expected to increase financial market volatility.

Israel holds rate steady, keeps watch on housing market - Central Bank News

For more details log on to Bank of Israel website : http://www.bankisrael.gov.il/en/Pages/Default.aspx 

Israel Central Bank holds rate, less worried over further slowdown

Israel's central bank held its policy rate steady at 1.25 percent, saying economic activity has continued at its recent pace, making it less concerned over a further slowdown but inflation expectations are below the midpoint of the bank's target range.
    The Bank of Israel (BOI), which cut rates twice in May to weaken the strong shekel, noted the currency's effective exchange rate had strengthened by 0.9 percent this month against a background of continued expansionary monetary policies in major economies.
    The cost of homes, one of the BOI's concerns in recent months, eased by 0.1 percent in April-May and previous months' data have been revised down but "it is too early to determine if this represents a change in trend," the bank said.
     Israel's inflation rate rose to 2.0 percent in June from 0.9 percent, the highest rate in 10 months, mainly due to a rise in VAT, along with higher prices for clothing, footwear, fuel and electricity.
    Inflation expectations for the next 12 months by private forecasters eased to 1.7 percent after the latest inflation data while forecasts for the BOI's policy rate one year from now remained stable at 1.1-1.2 percent on average. The BOI targets inflation of 1-3 percent.
    Economic activity in the second quarter is expected to be similar to the first quarter, though manufacturing exports continue to stand still, the BOI said.

    "Indicators which became available in the past month point to continued growth of economic activity at the relatively moderate pace of the past two years, which eased concerns of an additional slowdown in growth," the bank said.   
    The third estimate of first quarter Gross Domestic Product growth was revised upwards to 2.9 percent, another factor that eased some of the BOI's concerns. In the fourth quarter, GDP rose by an annual 2.6 percent.
     In March the BOI said economic activity was continuing to improve but it was still too early to tell if the economy had turned the corner.
    "The Bank of Israel will continue to monitor developments in the Israeli and global economies and financial markets, particularly in light of the continuing uncertainty in the global economy," it said, adding it would use the tools available to achieve its objectives and also keep a "close watch on developments in the asset markets, including the housing market

Israel holds rate, less worried over further slowdown - Central Bank News

for more details log on to Bank of Israel website : http://www.bankisrael.gov.il/en/Pages/Default.aspx