(Communicated by the BOI Spokesperson)

The decision to keep the interest rate for February 2016 unchanged at 0.1 percent is consistent with the Bank of Israel's monetary policy, which is intended to return the inflation rate to within the price stability target of 1–3 percent a year, and to support growth while maintaining financial stability. In view of developments in the inflation environment, in growth in Israel and in the global economy, in the exchange rate, as well as in monetary policies of major central banks, the Monetary Committee assesses that monetary policy will remain accommodative for a considerable time.
 
The following are the main considerations underlying the decision:
 
• Against the background of increasing volatility in financial markets and energy prices, the short-term inflation environment continued to decline this month, and there were declines in medium-term (forward) expectations as well. Long-term (forward) expectations remain entrenched above the midpoint of the target range. Further price reductions initiated by the government (in public transportation, water, and automobile insurance) are expected to be reflected in the CPI for January and February.

• Partial indicators that became available this month point to economic activity continuing its moderate improvement in the fourth quarter of 2015, and the effect of the security situation on economic activity remaining moderate. The Companies Survey indicates a slight improvement vis-à-vis the third quarter. The job vacancy rate continues to increase, and together with an increase in wages reflect a positive picture in the labor market.
• In the past month, global financial markets declined amid high volatility. The picture of activity remains positive in Europe, the picture is mixed in the US, and weakness continues in emerging markets. The IMF and the World Bank reduced their 2016 and 2017 forecasts for global growth and world trade. The ECB expressed readiness to further enhance the monetary accommodation, and market expectations are that the rate of increase in the federal funds rate will be lower than that expected last month.

• From the monetary policy discussion on December 27, 2015, through January 22, 2016, the shekel weakened by about 2 percent against the US dollar and by about 0.4 percent in terms of the nominal effective exchange rate. Over the past 12 months there has been an appreciation of 6.6 percent in terms of the nominal effective exchange rate, and its level continues to weigh on growth of exports and the tradable sector.

•  In recent months, the increase in home prices accelerated, and they rose by 7.6 percent over the past 12 months. The volume of new mortgages taken out remains high. The elevated level of activity in the construction industry is expected to continue to contribute to increasing supply.
 
The Monetary Committee is of the opinion that the risks to achieving the inflation target have increased, and the risks to growth remain high. The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets. The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.
 
For full Bank of Israel statement, please click here.