Bank of Israel - Press Releases - The Monetary Committee decides on April 8, 2019 to keep the interest rate unchanged at 0.25 percent
Central bank: boi | Type: statement | Date: 2019-04-08

The Committee assesses that 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. The Bank
of Israel continues to monitor developments in inflation, the real economy,
fiscal policy, the financial markets, and the global economy, and will act to
attain the monetary policy targets in accordance with such developments.
For the file of figures accompanying this notice, click
here.​
The inflation environment stabilized slightly above the lower bound of
the target range. The CPI for February increased by 0.1 percent, higher than
the assessments prior to its publication, and in the past 9 months, excluding
December, the annual inflation rate was 1.2 percent or higher (Figure 1 in
the attached file of figures). The adjusted indices are near the lower
bound of the target range (Figure 2). Inflation in nontradables, an
approximation of the domestic component of inflation, continued to increase,
reaching approximately 2.5 percent, while inflation in tradables continued to
decline, reaching a negative annual rate of -0.7 percent (Figure 3). In
the coming months, inflation is expected to be slightly above the lower bound
of the target, and 1-year expectations and forecasts from the various sources are
hovering near it (Figure 4). According to the Research Department's
staff forecast, inflation in the next four quarters is expected to be 1.3
percent. Medium-term and long-term forward expectations are slightly below the
midpoint of the target range (Figure 5). Since the previous interest
rate decision, the shekel appreciated by 1.2 percent in terms of the nominal effective
exchange rate. It strengthened by 0.5 percent against the dollar, and by 1.7
percent against the euro (Figure 7) If the appreciation continues, it
could delay the inflation rate’s rise toward the midpoint of the target.
Trading on equity indices in Israel was mixed since the previous
interest rate decision, and at the end of the first quarter of 2019, the
declines from the fourth quarter of 2018 had been largely offset (Figure 8).
The gap between government bond yields in the US and the yields on parallel
bonds in Israel narrowed slightly (Figure 9). Yield spreads between
corporate bonds in Israel and comparable government bonds continued to decline
(Figure 10).
The second estimate of National Accounts data by the Central Bureau of
Statistics also shows that economic growth in the fourth quarter of 2018 was in
line with the long-term rate, and it is clear that the slowdown in mid-2018 was
transitory (Figure 13). Most of the indicators of economic activity
support the assessment that the economy continued to grow solidly in the first
quarter: The Composite State of the Economy Index for February increased by 0.3
percent, similar to its rate of increase during 2018(Figure 14), and there
is a slight recovery apparent in goods exports (Figure 15). Labor market
data indicate that it remains tight—the unemployment rate declined slightly,
the employment rate is stable at a record high level (Figure17), and wage increases are continuing, led by the business
sector (Figure 18). These factors support the assessment that the
economy remains in a full employment environment. However, some industries are
showing an apparent slight easing in the labor shortage constraint as reported
by employers, and the job vacancy rate remains elevated but is declining
moderately. According to the Research Department's staff forecast, GDP is
expected to grow in 2019 by 3.2 percent, a slightly lower rate than in the
previous forecast, and by 3.5 percent in 2020. The economy is expected to grow
in those years at a rate slightly higher than the long-term pace, as a result
of significant activity by a number of large companies.
In the past year, home prices declined by approximately 0.7 percent (Figure11). The number of transactions continued
to increase, particularly among first-time home buyers, alongside the prolonged
decline in investment in residential construction. Mortgage volume continues to
expand, and mortgage interest rates remained stable (Figure 12).
The global macroeconomic picture continues to indicate moderation in both
the growth and inflation rates. The main risks include a possible escalation of
the trade war (despite progress in contacts between the US and China), and concern
over a no-deal Brexit in the UK. Investment houses again revised their growth
forecasts downward for most regions, particularly for Europe (Figure 19).
The slowdown in world trade is worsening, and includes the emerging economies (Figure
20). In the financial markets, there were increases in the equity indices (Figure
21), and declines in government bond yields in view of the expectation that
the process of global monetary contraction will be halted for now. In the US, the
pace of inflation moderated, and the Fed left the federal funds rate unchanged(Figure
22), and interest rate forecasts were revised downward. In addition, the
Fed announced its intention to end its balance-sheet contraction earlier than
had been expected. In Europe, economic activity continues to lose momentum and
sentiment indices continue to weaken. The ECB left its interest rate unchanged,
and revised its growth and inflation forecasts downward, but noted that the
chances of falling into a recession are very low. In addition, the ECB renewed
its program of providing credit to the commercial banks in order to support
economic activity in the eurozone. In the UK, risk remained high due to Brexit,
and uncertainty is expected to weigh on economic activity in the coming months.
In Japan, economic activity has moderated since the beginning of the year,
following some recovery in the fourth quarter of 2018. There is relative
stability in emerging markets, although economic activity is expected to
moderate. Growth in China continued to weaken in the first quarter. Oil prices continued
to increase, impacted by the decline in supply, further to the sharp increases
since the beginning of the year (Figure 24).
The minutes of the monetary discussions
prior to this interest rate decision will be published onApril 18, 2019.
The next decision regarding the interest rate will be published at 16:00 on Monday,
May 20, 2019.​​​