(Communicated by the BOI Spokesperson)
Economic activity in Israel is at a high level, and is accompanied by a tight labor market, although there is some moderation in a number of indicators. Inflation is broad and remains high. Therefore, the Monetary Committee decided to increase the interest rate. The interest rate path will be determined in accordance with activity data and the development of inflation, in order to continue supporting the attainment of the policy goals.
Inflation in Israel over the past 12 months remains above the upper bound of the target range, at 5 percent, and is high in a wide range of CPI components. Looking at the past 6 months, and even more so over the past 3 months, the pace of inflation is lower than the year-on-year inflation.
Inflation expectations and forecasts for the first year from all sources are around the upper bound of the target range. Expectations derived from the capital market for the second year onward are all within the target range.
Economic activity in Israel remains strong, but some economic indicators point to a moderation in activity. GDP grew by 2.5 percent in annual terms in the first quarter, a relatively high pace once the temporary effects of changes in vehicle taxation are omitted. The labor market remains tight, and in a full employment environment, but the job vacancy rate is in a downward trend.
In the housing market, the number of purchases and new mortgage volume continue to decline. Home prices remained unchanged in April, following a slight decline in March. In contrast, the upward trend in rents continued, and the housing services component of the CPI increased in the past year to 7.2 percent.
Since the previous monetary policy decision, the shekel weakened by 1.45 percent against the US dollar, by 0.7 percent against the euro, and by 0.8 percent in terms of the nominal effective exchange rate.
Globally, growth remains moderate but higher than expectations from the beginning of the year. The inflation environment remains elevated, but is in a moderating trend. The interest rate increases around the world are continuing, but the pace is slowing.