The Bank of Israel left the benchmark lending rate unchanged following two consecutive surprise cuts, holding it at a record low as the inflation rate dropped to zero and economic growth slowed.
The six-member monetary policy panel, led by Governor Karnit Flug, kept borrowing costs at 0.25 percent today. Twenty-one of 22 economists surveyed by Bloomberg had forecast the decision.
The bank cited its two earlier cuts and “the support the low interest rate level is providing the economy” as reasons to hold the rate.
“The Bank of Israel isn’t in a hurry to add more incentives,” said Alex Zabezhinsky, chief economist at Tel Aviv-based Meitav Dash Investment House Ltd.
“The remaining tools are limited or dangerous,” he said, referring to the possibilities of a further rate cut, or direct purchases of bonds that may create a bubble in debt markets. The government’s inflation target range is 1 percent to 3 percent.
The Central Bureau of Statistics today estimated that economic growth would slow to 2 percent this year, the lowest since 2009. For the past year and a half, the central bank has been using a combination of rate cuts and foreign currency purchases to try to invigorate the economy.
Lower Forecast
A strong shekel and a falloff in global demand for the exports that power the Israeli economy had already battered growth before it was further hurt by a 50-day military operation against Hamas in Gaza that has hit tourism and may have crimped domestic demand.
The Bank of Israel cut its growth forecast for 2014 today to 2.3 percent, from 2.9 percent at the end of June, while leaving the 2015 forecast unchanged at 3 percent. It cited the July-August military operation as the main contributing factor to the revision, as well as the lower-than-estimated second-quarter growth figures.
After the last two cuts, Flug has little room left to use interest rates to stimulate the economy, said Rafi Gozlan, chief economist at Israel Brokerage & Investments Ltd.
“The main avenue through which the Bank of Israel is expected to operate is the exchange rate,” Gozlan said. “The close-to-zero interest rate environment appears to have little ability to influence domestic demand.”
bloomberg.com
The six-member monetary policy panel, led by Governor Karnit Flug, kept borrowing costs at 0.25 percent today. Twenty-one of 22 economists surveyed by Bloomberg had forecast the decision.
The bank cited its two earlier cuts and “the support the low interest rate level is providing the economy” as reasons to hold the rate.
“The Bank of Israel isn’t in a hurry to add more incentives,” said Alex Zabezhinsky, chief economist at Tel Aviv-based Meitav Dash Investment House Ltd.
“The remaining tools are limited or dangerous,” he said, referring to the possibilities of a further rate cut, or direct purchases of bonds that may create a bubble in debt markets. The government’s inflation target range is 1 percent to 3 percent.
The Central Bureau of Statistics today estimated that economic growth would slow to 2 percent this year, the lowest since 2009. For the past year and a half, the central bank has been using a combination of rate cuts and foreign currency purchases to try to invigorate the economy.
Lower Forecast
A strong shekel and a falloff in global demand for the exports that power the Israeli economy had already battered growth before it was further hurt by a 50-day military operation against Hamas in Gaza that has hit tourism and may have crimped domestic demand.
The Bank of Israel cut its growth forecast for 2014 today to 2.3 percent, from 2.9 percent at the end of June, while leaving the 2015 forecast unchanged at 3 percent. It cited the July-August military operation as the main contributing factor to the revision, as well as the lower-than-estimated second-quarter growth figures.
After the last two cuts, Flug has little room left to use interest rates to stimulate the economy, said Rafi Gozlan, chief economist at Israel Brokerage & Investments Ltd.
“The main avenue through which the Bank of Israel is expected to operate is the exchange rate,” Gozlan said. “The close-to-zero interest rate environment appears to have little ability to influence domestic demand.”
bloomberg.com
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