The Monetary Committee of Bank of Israel decided Monday (Oct. 3) to increase the interest rate by 0.75 percentage points, to 2.75%.
The Bank said Monday in a statement that inflation in Israel is “above the upper bound of the target range” at 4.6 percent over the past 12 months and is being recorded in a “wide range of CPI components.”
Since the previous monetary policy decision, the shekel was particularly weak, dropping by 8 percent against the US dollar, by 6.2 percent against the euro, and by 5.9 percent in terms of the nominal effective exchange rate.
That having been said, “economic activity in Israel remains strong,” the Bank noted, with a tight labor market and a “full employment environment.”
Economic activity indicators are continuing to point to increased activity and a GDP that is higher than the trend forecast prior to the start of the COVID-19 pandemic, with the Bank citing eased pressure in the global supply chains and continued recovery in the tourism sector.
“Good exports (excluding ships, aircraft and diamonds) remain higher than before the pandemic, and services exports remain very high,” the Bank said. “Goods imports are also high in all components.”
Nevertheless, the Bank’s research department revised its forecast, currently assessing that the GDP will grow by six percent in 2022, and by three percent in 2023.
“Home prices increased by 17.9 percent in the past 12 months, a significantly higher pace than in previous years. However, the numbers of building permits and of building starts increased and are very high, [although] building completions have remained low thus far, in view of the extended duration of construction.” The number of housing transactions continues to decline, the Bank said. The monthly pace of rent price increases climbed to 0.8 percent in August.
The inflation rate is expected to be 4.6 percent in 2022, and to drop to 2.5 percent in 2023.
“The energy crisis in Europe and the continuing war in Ukraine, the high inflation and monetary tightening, plus the slowdown in China, are all leading to moderation in economic activity around the world,” the Bank added.
