Fischer’s Final Acts: Interest Rate Unchanged, Growth Outlook Cut

The Bank of Israel’s monetary committee voted to leave the base lending rate unchanged at 1.25% for July, citing forecasts showing inflation coming in at about the midpoint of the government’s target of 1% to 3% annually, as well as signs of slowing economic growth.

Bank of Israel Governor Stanley Fischer on Monday left it to his successor to decide which way to go on interest rates in the coming months. But he also left the incoming governor with little doubt about the economy‘s direction.

The central bank’s monetary committee voted to leave the base lending rate unchanged at 1.25% for July, citing forecasts showing inflation coming in at about the midpoint of the government’s target of 1% to 3% annually, as well as signs of slowing economic growth.

The committee also cited global developments that may ease the pressures that have caused the shekel to strengthen in recent months − a trend Fischer has sought to reverse by interest rate cuts and intervening in the forex market.

“The Federal Reserve recently announced an expected removal of policy accommodation in the future, subject to the continued improvement in macroeconomic conditions in the U.S.,” it said. “Against this background, bond yields rose in the U.S. This increase, should it continue, is likely to moderate the forces for appreciation of the shekel.”

The rate decision was the 100th for Fischer, who will be stepping down next week after eight years as governor.

The bank on Monday also lowered its economic forecasts for next year, a day after Prime Minister Benjamin Netanyahu nominated Jacob Frenkel to succeed Fischer.

The bank revised its growth estimate for 2014 downward, to 3.2%, from 4% forecast at the end of March. For this year, it still expects the economy to grow 3.8%, an improvement over2012’s 3.2%, but only because natural gas production started at the Tamar field.

Central bank economists said that most components of GDP growth would be lower than they projected in March, including exports, investment and consumer spending.

It said unemployment would remain unchanged this year from the 2012 average of 6.8%, but that it would climb to 7.2% in 2014.  

Bloomberg