The Monetary Committee of the Bank of Israel, headed by Governor Amir Yaron, decided to leave the interest rate unchanged for the sixth time in a row, and it will be 0.25%. At the same time, Bank of Israel economists kept the interest rate forecast unchanged for the rest of the year and next year. This means that the interest rate will rise once at the end of the third quarter of 2019 and twice in 2020.
The rate of the basic interest rate in the economy has been 0.25 percent since the end of November 2018. At that time, the acting deputy, Nadine Bodo-Trajtenberg, decided to raise the interest rate from 0.1 percent to 0.25 percent.
At the press conference, Yaron said, "The (monetary) discussions have not been easy and this time they were particularly complex, since the developments since the last interest rate decision were in opposite directions. The deficit, and the probability of a change in the monetary policy of the leading central banks worldwide, and we continue to believe that the interest rate hike will be gradual and small. "
"The expected change in monetary policy of the Fed and the European Central Bank will affect the world, and especially small and open economies - the Bank of Israel still has tools to intervene in the foreign exchange market. In view of the uncertainty of the data of the past few weeks, and especially the developments in the world, the current expansionary policy can be maintained for a longer period of time. The forecast you see regarding the interest rate is that of the Bank of Israel economists and not of the Monetary Committee. "
The inflation environment is above the lower limit of the price stability target range (between 1 percent and 3 percent), and recently there was a slight increase, against the background of the economy being in a full employment environment, with the May CPI rising by 0.7 percent, higher than the estimates before it was published , With most of the indices since the beginning of the year surprising upwards.
The Bank notes that in the past 12 months inflation has been 1.5%, for the first time since 2013, with a relatively significant contribution of the fruit and vegetables item, which is very volatile.
The Bank also referred to inflation in the prices of nontradable goods, which is an approximation of the local component of inflation, which has moderated somewhat in recent months, but is still above 2% (midpoint of target), and market inflation continues to rise.
In addition, the Bank of Israel's Research Department updated its forecast of growth in the Israeli economy down to only 3.1 percent, 0.1 percent lower than previously forecast.
The Research Division updated downwardly and sharply the forecast of an increase in Israeli exports: from a level of 4% to only 3.5%. The Bank of Israel forecasts that inflation in the next four quarters is expected to stand at 1.4% and 1.6% in 2020, similar to the previous forecast.
As stated, the interest rate is expected to rise in the third quarter of 2019 to 0.5% and to continue to rise gradually, so that by the end of 2020 it is expected to stand at 1%.