Israel: Bank of Israel keeps policy rate on hold in December

At its 28 December monetary policy meeting, the Bank of Israel (BoI) decided to leave the policy rate unchanged at 0.11% as markets had expected. This is the eighth consecutive meeting in which the Bank has decided to keep the policy rate on hold.

The BoI commented that the economy likely grew at a steady rate in the fourth quarter, thus following the 2.4% expansion tallied in the third quarter. The escalation of violence in the country is negatively affecting tourism and, according to the Bank, tourist entries declined a seasonally-adjusted 0.5% in November, which followed a drop of 7.0% in October. Regarding the labor market, the BoI added that the unemployment rate is low and that the job vacancy rate is high.

In November, consumer prices fell 0.9% annually, which was down from the 0.7% drop seen in the previous month. As a result, the annual variation in consumer prices remains well below the Central Bank’s inflation target range of 1.0% to 3.0%. The Bank guided the markets and added that looking forward, “[the] interest rate is expected, according to the staff forecast, to remain at 0.1 percent in the first three quarters of 2016, and to increase to 0.25 percent at the end of the year.” Regarding the inflation outlook, the BoI commented that inflation will likely hover at low levels this year before returning within the target range at the beginning of 2017.

Met the why particular Consensus Forecast panelists expect the base rate to end 2016 at 0.47%. For 2017, panelists see the policy rate ending the year at 1.29%.