For the file of data accompanying this notice​

Graphs and data (hebrew)

  • The annual inflation rate
    is slightly below the target, but the inflation environment remains low:
    inflation expectations for up to the third year remain below the target range.
    The increase in nominal wages, the strong economic environment, and inflation
    worldwide will act to increase the inflation rate, while the appreciation that
    has occurred in the shekel, increased competition in the economy and measures
    adopted by the government to reduce the cost of living will act in the opposite
  • Indicators of activity point
    to continued economic growth at a solid pace in the second quarter as well, and
    the labor market remains strong. Over time, growth of exports has been based on
    growth of services exports, while goods exports have essentially stood still.
  • The global economy
    continues its moderate improvement, and there is an increase in the growth rate
    of world trade. In Europe, the recovery is becoming entrenched, and political
    risk has declined. The Federal Reserve increased the federal funds rate, as
    expected, but central banks of other major economies are continuing the very
    accommodative policy for now.
  • Since the last monetary
    discussion, there were relatively sharp changes in cross rates and the
    effective exchange rate appreciated by less than one percent. In the past 12
    months, the effective exchange rate strengthened by 9.4 percent.
  • Stability in home prices
    has been apparent for the past several months, and housing market indicators continue
    to point to the market cooling off.


The Monetary
Committee intends to maintain the accommodative policy as long as necessary in
order to entrench the inflation environment within the target range. The Bank
of Israel continues to monitor developments in inflation, the real economy, the
financial markets, and the global economy, and will act to attain the monetary
policy targets in accordance with such developments.


In recent
months, the 12-month inflation rate has stabilized at slightly below the lower
bound of the target range, and inflation for the 12 months ending in May was
0.8 percent (Figure 1 in the data file). With that, the inflation rate is
expected to decline in the coming months, partly as a result of an expected reduction
in water and fuel prices and in the prices of after-school childcare. The rate of
increase in tradable goods prices remains negative against the background of the
appreciation of the shekel, but continues to increase, impacted by relatively
high inflation abroad. The rate of increase in prices of nontradable items has
moderated, but is within the inflation target. (Figure 3). One-year
expectations from the various sources ranged in opposite directions, but all
remain below the target range. Third year forward inflation expectations also declined
to below the target range, but longer term expectations are anchored within the
range. The increase in nominal wages, the strong economic environment, and
inflation worldwide will act to increase inflation, while the appreciation that
has occurred, the increased competition in the economy, and measures adopted by
the government to reduce the cost of living will act in the opposite direction.


All the
indicators of economic activity point to the economy having continued its solid
growth in the second quarter as well, as conveyed by preliminary data from the
Companies Survey (Figure 10), the Purchasing Managers Index, the
Consumer Confidence Indices, and the Composite State of the Economy Index. Foreign
trade data indicate continued sluggishness in goods exports against the
background of the continued appreciation of the shekel and despite the
improvement in world trade. Export growth is based on rapid growth in services
exports (Figure 12). The entrenchment of growth continues to be
reflected in the labor market. The slight increase in the unemployment rate in
April and May was accompanied by increases in the participation rate and in the
employment rate (Figure 13), the job vacancy rate remains high, and the
pace of wage increases continues to accelerate.


Housing market
data continue to indicate moderation in demand and a slowing of activity. In
recent months, home prices seem to have stabilized (Figure 7), and there
were declines in the volume of transactions among all buyer types and in the
volume of new home sales. The monthly pace of new mortgages granted continues
to moderate, the increase in mortgage interest rates has been halted, and there
is some decline apparent in those interest rates in recent months (Figure 8).


Global economic
activity continues to improve moderately. The OECD raised its global growth
forecast for 2017, and the improvement includes most major economies other than
the US, for which the forecast was lowered (Figure 15). The increase in
the growth rate of world trade continues, with an emphasis on emerging markets.
The messages from several central banks were slightly less dovish, leading to
an increase in bond yields, but with the exception of the US Federal Reserve, none
of the major central banks changed their accommodative policy, and inflation in
most major economies remains below the target (Figure 18). In the US,
the assessment is that there was an improvement in the growth rate in the
second quarter, following low growth in the first quarter, and the labor market
is near full employment, but wage increases remain moderate and are not being
translated into inflationary pressures. Assessments are that the administration
will have difficulty implementing the fiscal expansion that was expected. In
Europe, assessments are that growth continued at a relatively high pace in the
second quarter, and political risk declined, which was reflected in, among
other things, a decline in yield spreads between Germany and other European
countries. In contrast, in the UK a slowdown is apparent due to the uncertainty
regarding the Brexit process. In Japan, the Bank of Japan’s assessment is that
the output gap has been closed, but inflation remains low. The economic data
published in China indicate a continuation of relatively moderate growth. Energy
prices declined slightly, and the prices of other commodities were stable.



The minutes of the monetary discussions prior to this interest
rate decision will be published on July 24, 2017.

The next decision regarding the interest rate will be
published at 16:00 on Tuesday, August 29, 2017.