BOI reduces rates, cites inflation concerns

The Bank of Israel decided to reduce interest rates by 0.25% as economists of the Bank of Israel predict that prices in Israel will continue to increase until April 2013 by around 2.4%. This forecast also predicts that the price of rentals will increase even more.

The Bank of Israel believes that a further reduction is not necessary at this point and that the growth rate of the economy will reach 3.1% in 2012 and 3.4% in 2013. Slower growth is expected to result in reductions in imports, exports, investments and private consumption and is due to the debt crisis in Europe as well as the global economic downturn. However, the Bank of Israel believes that unemployment will continue to fall, in spite of that slowing growth.

The inflation rate continues to be above the target midpoint set by the government (2%) and forecasts of the Bank of Israel also indicate that the cost of rent which is the largest household expenditure in Israel (24%) continues to grow at a rate higher than the average inflation rate.

On the other hand, the bank noted that the debt crisis in Europe has decreased demand for oil and gas in the world. Therefore their price should continue to fall and help contain inflation.

Source Credit Israel