• ​The inflation environment remains below the target, although there are continued indications of some increase in it. In February and March, the CPI increased by a rate slightly higher than forecast, but expectations and most forecasts for one year remain below the target, while expectations for the medium and long terms are anchored within the target range.
• According to indicators of economic activity, it may be assessed that in the first quarter, the economy continued to grow at a solid pace, perhaps even higher than the potential growth rate. Exports are increasing, driven by services exports. The labor market remains tight, and the downward trend in the unemployment rate continues. Wages are continuing to increase, though at a rate that is lower than in the past.
• The data and forecasts regarding the global economy indicate that the improvement is becoming entrenched, but there are signs of a decline in momentum, and the risks to continued growth are increasing. Concerns over a “trade war” have increased, as have geopolitical risks. The Federal Reserve increased the federal funds rate, as expected, and is expected to raise it twice more this year.
• The exchange rate has not changed significantly since the last interest rate decision. At the beginning of the period, the shekel strengthened by about 2 percent in terms of the nominal effective exchange rate, and subsequently there was a depreciation by a similar rate.
• Housing market data continue to indicate a slowing of activity. The decline in the number of transactions continued, and in the past five months, home prices have declined by 2.4 percent. At the same time, there has been a significant decline in the number of building starts.

The next decision regarding the interest rate will be published at 16:00 on Monday, May 28, 2018.

External links:

• Full Bank of Israel report
• Remarks by Bank of Israel Gov. Dr. Karnit Flug