The Bank of Israel left interest rates unchanged, at 0.25% for the Prime Rate. In November, the Bank raised the rate from 0.1% and has left it unchanged since. The Bank also reduced the projected growth rate of the economy from 3.2% to 3.1%. It has maintained its forward protection that the Prime Rate will increase to 0.5% in the fall, and said it expects that there will be two additional rate increases next year, to bring the rate to 1% by the end of 2020. The Bank expects an inflation rate of 1.6% in 2019.
The rationale for the decision to leave the interest rate as is, along with the Bank’s forward statement was based on the fact “the inflation environment is above the lower bound of the target range, and recently it has increased slightly, with the economy being at a full employment environment. Since the beginning of the year, most CPI readings have surprised to the upside. The inflation rate over the preceding 12 months has been 1.5%, and it currently seems less likely that inflation will again fall below the lower bound of the target range. Most one-year inflation expectations and forecasts are slightly above the lower bound of the target range, and forward expectations for medium and longer terms remained near the midpoint of the target.”