Bank of Israel

November 24, 2014

A dozen central bank interest rates between September 2011 and August 2014, including three this year, reduced Israel’s central bank interest rate to 0.25% from 3.25%, but monetary officials are reluctant to go all the way to zero without cause.  Moreover, in a statement after the latest monthly policy meeting officials reaffirmed the main message sent in October:

The Monetary Committee is of the opinion that the effects of the recent interest rate reductions, which brought the interest rate to a level of 0.25 percent, have not yet been fully reflected in activity and in inflation, and in light of that decided to keep the interest rate unchanged this month as well.

Consumer prices rose on month in October but posted the same deflationary 0.3% decline as in September.  More importantly, measures of expected inflation both for the coming 12 months and two years continue to recede and lie below the floor of the central bank’s 1-3% target.  Officials are consequently not concerned about continuing exchange rate depreciation.  Economic growth contracted in the third quarter reflecting the conflict in Gaza, but fourth-quarter evidence suggests a return to modest positive growth.  The possibility of a near-term rate change is skewed to the downside, but officials would like to avoid cutting beyond the low 0.25% level if they can.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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