The Bank of Israel's verdict over whether the recent increase in home prices presents an inflationary threat is still out, but officials are worried.
That is the message from the minutes of the central bank's last rate-setting meeting on July 23, where the Monetary Committee voted unanimously to keep the base lending rate unchanged at 2.25%.
"The current rate of increase in prices does not indicate a renewed trend of price increases, but the risk inherent in a future renewal of such a trend cannot be ignored," a summary of the discussions, released yesterday, said.
Committee members were responding to figures showing that home prices rose 0.7% in April-May after rising 1.3% in March-April. In the 12 months ended in June, price rose by 2.1%, according to the Central Bureau of Statistics. The rises recall the spurt in home prices in 2009 and 2010.
The Bank of Israel's views are critical because while it has multiple tools to restrain the hike in home prices - higher interest rates and restraints on the mortgage market - these could also deal a blow to an economy already suffering slower growth.
Committee members, led by Governor Stanley Fischer, agreed that low interest rates are playing a role in the renewed rise in home prices. Low returns on the capital markets are encouraging investors to put their money into real estate, pushing prices up.
But at last month's policy meeting the committee did not raise rates, nor has the bank taken any other steps to cool the market. Last month's minutes reveal that officials believe the task of controlling prices belongs to Prime Minster Benjamin Netanyahu and Finance Minister Yuval Steinitz.
The committee devoted much of its discussions to fiscal policy and the uncertainty surrounding it. The government and Knesset have since approved significant tax increases to Fischer's satisfaction, but the measures do not close the gap between the targeted and forecasted fiscal deficits, and uncertainty remains.
