JERUSALEM: Israel’s central bank raised its economic growth estimate for next year on Monday and indicated interest rates would stay on hold until an increase in early 2016.
At its monthly policy meeting the Bank of Israel kept its benchmark interest rate at 0.25 per cent for a fourth straight month, as expected, saying it expected the economy’s recovery from the Gaza war to accelerate.
Growth took a hit in the third quarter due to the Gaza war but recent data suggests the economy is bouncing back, helped by a weaker shekel, which is bolstering exports.
The central bank estimated that the 50-day conflict, which hurt production, tourism and consumer spending, shaved 0.3 per centage point off annual economic growth.
However, in updated forecasts, the bank raised its 2014 economic growth projection to 2.5 per cent from 2.3 per cent and said it expects growth of 3.2 per cent next year, up from a prior estimate of 3 per cent. It also forecast 3.0 per cent growth for 2016.
The central bank’s economists predict the key interest rate will remain at 0.25 per cent through 2015 before rate increases begin in 2016.
In keeping rates steady, policymakers said recent data point to a recovery, “with the economy’s expected return to its path of growth from before the (war) expressed in a relatively high growth rate in the coming quarters.”
The central bank noted that although the inflation rate remained negative at -0.1 per cent in November, inflation is expected to gradually rise to a rate of 1.1 per cent in a year – just within a government target of 1-3 per cent.
“The Monetary (Policy) Committee is of the opinion that the current level of the interest rate supports the continuation of the recovery in economic activity, and the return of inflation to within the target range,” the Bank of Israel said in a statement.
It added that a weaker shekel should also boost exports. The shekel has depreciated some 14 per cent versus the dollar since July.