By Central Bank News
The Bank of Israel left its interest rate unchanged at 2.25 percent, as expected by most economists, saying the recent decline in the value of the shekel against the dollar should help buffer the country against a weaker global economy.
The BOI also said that inflation over the past year was one percent and an increase in commodity and energy prices should push the rate up to near the center of its 1-3 percent range.
“Against the background of the previous month’s interest rate reduction and the recent weakness of the shekel, which are expected to assist the Israeli economy to deal with the difficulties it faces, the Monetary Committee assessed the factors noted above and voted to leave the interest rate unchanged this month,” the bank said in a statement.
The Israeli central bank has already cut rates twice this year for a total of 50 basis points, the most recent 25 basis-point cut was in June.
Economists are expecting the Israeli central bank to cut rates by another 25 basis points later this year but only a few were speculating that the rate cut could come as early as today.
The bank said the shekel had fallen by 2.6 percent against the dollar since it’s last monetary policy meeting in June while it had risen 0.5 percent against the euro. The lower shekel improves the international competitiveness of Israeli exports.
Inflation, as measured by the consumer price index, fell by 0.3 percent in June, below forecasts, pushing the annual inflation rate to 1.0 percent from 1.6 percent in May. The bank said inflationary expectations call for inflation of 2.1-2.2 percent in a year.
The bank took note of the deterioration in Europe’s economy and a slowdown in the global growth rate.
“The level of economic risks from the world following developments in Europe remained high, and with it the concern of negative effects on the domestic economy,” the bank said, adding that several central banks had already cut interest rates this month along with the central banks of the UK and Japan increasing their bond purchase programs.
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