Bank of Israel

July 27, 2015

The key central bank interest rate was left at 0.10%, its level since a cut of 15 basis points in February.  There were three reductions of 25 basis points each in 2014, the latest of which occurred in August.  75 basis points each were cut in 2011, 2012, 2013 from an end-2010 level of 3.25%.  Central bank officials are trying to lift inflation, currently at negative 0.4%, back to its 1-3% target range.  But shekel appreciation, which was extended by 2.5% in effective nominal terms over the past month, and lower world oil prices are posing new challenges to that effort according to a statement released today.

CPI components representing tradable goods declined by 1.8 percent over the past 12 months, and are still affected by the decline in energy prices that occurred prior to the beginning of 2015. The growth rate of components representing nontradable items continues to increase, as prices rose by 0.5 percent over the previous 12 months. In March–June, the rate of increase in the CPI has been consistent with achieving the inflation target, but inflation measured over the preceding 12 months is expected to remain negative for several more months. In addition, the decline in energy prices that resumed in the past month, and the appreciation of the shekel, are liable to defer the return of the inflation rate to within the target range.

Israel’s economy continues to expand moderately, but global growth risks related to situations in Greece and China are being monitored as potential downside dangers.  Measures of long-term expected Israeli inflation are hovering around the 2% midpoint of the central bank’s target range.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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