The Bank of Israel said Aug. 28 that it will not raise its key interest rate, which it kept unchanged at 0.25%, for an "extended period" amid a downward shift in the inflation environment and a strengthening currency.
Inflation readings for June and July came in lower than expected due to falling prices of energy and fruits and vegetables, the central bank said. Annual headline inflation stood at 0.5%, while core inflation, which strips out energy and fruits and vegetables, came in at 0.9%, below the central bank's target range of 1.0% to 3.0%.
Meanwhile, the Israeli shekel has strengthened 3% since the central bank's last monetary policy decision in July, and by 8.7% since January. Further appreciation of the currency would hinder efforts to bring inflation toward the target range "for a more extended period," the bank said.
The bank added that if necessary, it will take "additional steps toward making monetary policy even more accommodative" to spur inflation toward the midpoint of its target range and to support economic activity.
The domestic economy continues to grow near its potential rate, the central bank said, adding that "so far it seems that activity in Israel is not being adversely affected by the negative global sentiment." The bank expects GDP to grow at annual rates of 3.1% and 3.5%, respectively, for this year and next.
