Bank of Israel in no rush to cut rates
Central bank officials see economic and price stability but are worried about rising housing costs, minutes of latest policy meeting show
All six monetary policy members voted to leave the benchmark interest rate at 1.75% on January 28, the minutes showed.
The Monetary Policy Committee (MPC) had cut the key rate in two of the three prior months due to signs of economic weakness and concern that loose monetary policy around the world was propping up the shekel and harming Israeli exports.
In leaving rates unchanged last month, the MPC cited stability in the economic growth rate - at around 3% - and in unemployment and inflation.
Israel's economic growth is expected to slow to 2.8% in 2013, excluding natural gas production, from 3.3% in 2013. The unemployment rate edged up to 6.9% in the fourth quarter of 2012, while inflation is expected to hold near 2% this year.
"The level of pessimism in monthly surveys of economic activity declined and no longer indicates a continued slowdown in activity," the minutes said on Monday.
At the same time, it appears the risks of deterioration in the debt crisis in Europe are declining, while concerns over automatic tax rises and spending cuts in the United States, the so-called "fiscal cliff" had mostly receded. And while the level of activity in Europe does not indicate a recovery, data published in the United States and China were mostly positive, it said.
Concern at renewed increase in home prices
The shekel has risen to a 15-month high at 3.69 to the dollar and the Bank of Israel does not see a reversal anytime soon due to the start of natural gas production in 2013 that will contribute to Israel's current account surplus, while "continued quantitative easing in the United States, Europe and Japan supports a strengthening of the shekel."
MPC members expressed concern at the renewed increase in home prices at a rapid pace along with a fall in building starts and a rise in mortgage volumes. The central bank said its steps to limit mortgages in late 2012 should be reflected in upcoming data but that most of the problem of home prices lay with supply.
"The government has tools to increase the supply of homes for residence which can act to moderate the increase in home prices without negatively impacting on the level of activity in the industry," the Bank of Israel said.
Separately, it noted that mortgage loans by banks fell to NIS 3.97 billion ($1.1 billion) in January from NIS 4.66 billion in December.
The central bank typically takes interest rate decisions every month but it said it will no longer make interest rate decisions around the week-long Jewish holidays of Passover and Sukkot since data is received with a lag and activity levels are low due to the holidays.
That means that this year, rate decisions will not be made in April or September. The rate set in late March will be in effect for April and May, and the interest rate set in August will be in effect for September and October.
Depending on the Jewish calendar, Passover falls in March or April and Sukkot is celebrated in September or October.
"The monetary (policy) committee maintains the authorization... to change the interest rate in the inter-meeting periods, should it deem it necessary," the Bank of Israel said.
The next rate decision will be on February 25.
