Israeli Central Bank Interest Rate Left Unchanged but Released Statement Is Decidedly More Dovish

August 28, 2019

The Monetary Committee’s assessment is that in view of the turnaround in the inflation environment in Israel and in the monetary policies of major central banks, the slowing in the global economy, and the continued appreciation of the shekel, the interest rate will not be increased for an extended period. Moreover, if necessary, the Committee will take additional steps toward making monetary policy even more accommodative in order to support a process at the end of which inflation will stabilize around the midpoint of the target range, and to support economic activity.

Thus concludes the released Bank of Israel statement after policymakers left the key interest rate at 0.25%. A 15-basis point hike last November had reversed the final cut in the prior easing cycle. When the committee met seven weeks earlier, officials had given every indication that more rate increases would follow, asserting “the rising path of the interest rate in the future will be gradual and cautious, in a manner that supports a process at the end of which inflation will stabilize around the midpoint of the target range, and that supports economic activity.” Today’s statement notes that inflation, measures of expected inflation both in the short term and longer term, and economic growth have been slower than assumed, and such is happening in a less inflationary global environment.

Central bank interest rates have been lower in a lengthy list of countries already this year. Turkey’s benchmark was slashed 425 basis points in a single move in July, and the rate has been also cut at least a full percentage point in Iceland, Sri Lanka, and Ukraine. Cuts totaling at least 50 basis points have occurred in India, Chile, Australia, Russia, the Philippines, Serbia and Indonesia. There have also been single 25-basis point reductions by central banks in the United States, Mexico, Peru, South Africa, South Korea, Malaysia, and New Zealand. Conspicuously, the European Central Bank hasn’t reduced its three key interest rates, but targeted LTROs operations were resumed and forward guidance has tilted further in the direction of accommodation. The Bank of Japan, Swiss National Bank and Bank of Canada are other notable central banks that have not yet engineered a rate cut in 2019, but that could soon change.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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