Bank of Israel Governor Stanley Fischer.
Bank of Israel Governor Stanley Fischer. Courtesy.
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The Bank of Israel announced yesterday afternoon that it will leave its benchmark interest rate for September unchanged at 2.25%.

There are a number of reasons for the decision, handed down by the central bank's monitoring committee. The 12-month inflation rate stands at 1.4%. With season adjustments, this puts inflation for the year below the 1% floor of inflation targets, at 0.9%.

The Consumer Price Index rose 0.1% in July, in line with forecasts. The main factors that stood out during the month were the increase in the housing index and the decline in the food and energy components of the CPI.

Indicators of real economic activity that became available this month support the assessment that the economy is growing at a rate similar to that of recent quarters, a rate which is in line with the Bank of Israel's growth forecast for 2012 of 3.1% and 3.4% for 2013. But the bank cautioned, in its announcement yesterday, "Based on developments since the end of June, it is likely that the growth rate projection for 2013 will be revised downward in the September update to the forecast."

Economic activity surveys point to expectations of decelerated growth. The rise in the housing component of the CPI was just 1% in July, compared to a rise of 4% in the 12 months prior. Home prices, which are not included in the CPI, increased in May-June by 0.1%, after increasing by 0.4% in April-May, according to figures released by the Central Bureau of Statistics. In the 12 months ending in June, home prices rose 1.2%, compared to an increase of 1.7% in the 12 months ending in May.

"Activity in the construction industry is strong compared with its levels in the past decade," the Bank of Israel noted. "Although building starts are below the record level of the middle of 2011, they remain high and are expected to continue to be reflected in an increased inventory of homes.," the central bank said.