In Unexpected Move, Bank of Israel Leaves Interest Rates Unchanged

'Since the previous interest rate decision there was no significant change in the inflation environment, even though the most recent consumer price indexes were a bit lower than expected,' the committee explained

Governor of the Bank of Israel, Karnit Flug speaks at the Bank of England conference 'Independence 20 Years On' at the Fishmonger's Hall in London, Britain September 29, 2017
AFOLABI SOTUNDE/ REUTERS

The Bank of Israel’s monetary committee decided Monday to leave interest rates unchanged for yet another month, bucking expectations that Israel was due for a rate hike for the first time in more than three years.

The central bank’s benchmark rate has been at an all-time low of 0.1% since March 2015.

This is Central Bank Governor Karnit Flug’s last interest-rate decision before vacating the post.

The decision comes despite mounting expectations that a rate increase is approaching. The central bank will have one final chance to raise rates this year – the decision is planned for November 26.

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However, the macroeconomic forecast that the bank’s research division published Monday forecast that rates wouldn’t be increased until the first quarter of 2019.

The previous forecast, published in June, had predicted that rates would increase to 0.25% by the final quarter of 2018.

The latest forecast puts GDP growth at 3.7% for the year, and 3.6% for 2019. Inflation for 2018 is forecast at 0.8%, down from the previous forecast of 1.2% and under the central bank’s goal range of 1-3%.

“Since the previous interest rate decision there was no significant change in the inflation environment, even though the most recent consumer price indexes were a bit lower than expected,” the committee stated in its explanation for its decision. Yet the committee believes that forces increasing inflation are still at play, chief among them the risk of the shekel sharply appreciating.

Also Monday, the Central Bureau of Statistics stated that unemployment had decreased slightly in August, to 4% of people aged 15 and up who are in the workforce, versus 4.1% in July. The central bank tracks employment among people between the ages of 25-64. Among this group, unemployment was unchanged in August at 3.4%. Workforce participation for this group was also unchanged, at 80.4%. For Israelis aged 15 and up, workforce participation increased slightly, from 63.9% in July to 64% in August.