The decision was in harmony with market expectations, given the crisis in Europe and the U.S. economic slowdown, which is actually beginning to affect Israel, whose GDP growth decelerated to 3.8% growth in the third fiscal quarter from 4.6% in the first quarter.
The stall in the central bank’s return to “normal” interest rates could result in increasingly swift interest rate hikes in the future.
DS Brokerage chief economist Alex Zabezhinsky said:
“Inflation is beginning to be felt not only in apartment prices, and because of international factors, such as commodities prices, but also as a result of domestic demand caused by falling unemployment and the full use of production capacity. Although the rise in the latest CPI was in line with expectations, were it not for the unexpected drop in the housing item (rent), which we think was ephemeral, the CPI would have greatly exceeded forecasts due to higher prices for a long line of goods and services. In addition, the continuing rise in home prices leads us to conclude that the risk of an inflationary outbreak has risen, and today’s decision by the Bank of Israel does not help calm things down.”