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By Tova Cohen
TEL AVIV, July 7 Bank of Israel policymakers
held short-term interest rates steady last month on long-term
inflation expectations that were within the target range and
indications the economy is growing moderately, minutes of the
discussions showed on Monday.
Five of six members of the monetary policy committee voted
to hold the benchmark interest rate at 0.75 percent for a fourth
straight month on June 23. One member voted to reduce the rate
by 0.25 percentage points.
"Most committee members were of the opinion that the current
level of the interest rate supports the economy's stable rate of
growth, and that it is consistent with meeting a flexible
inflation target, which allows a deviation for some time from
the target range," the minutes said.
While inflation is expected to decline in coming months to
below the lower bound of the government's 1-3 percent annual
target, the central bank forecasts it will return to the target
range within about six months.
Last month the central bank forecast economic growth of 2.9
percent in 2014 and 3.0 percent in 2015.
"Most committee members felt that maintaining the current
level of the interest rate is consistent with the need to
maintain financial stability in the asset markets, and noted in
this regard the steps taken by the Supervisor of Banks in the
mortgage market," the minutes said.
Committee members said that although there was an increase
in housing prices in March-April and a continued large volume of
mortgages were taken out, there was a slowdown in activity in
the housing industry in the first quarter.
After the shekel's exchange rate had been stable early in
the year, its appreciation renewed in the past month. Committee
members said that did not derive from short-term capital flows.
They agreed that continued appreciation was due to a surplus
in the current account, the large volume of direct investment in
the economy, institutional investors hedging their investments
abroad, and a stable macroeconomic situation.
Committee members discussed corporate bond spreads being at
a low level and that mutual funds specialising in these
securities increased their net investment.
"Committee members claimed that the low interest rate levels
in Israel and worldwide increased the attractiveness of this
investment vehicle, in a search for yield," the minutes said.
"They agreed that the risks to financial stability deriving from
this market should continue to be monitored."
One committee member supported reducing the interest rate in
light of the moderation in the growth rate of private
consumption, the assessment that inflation will decline in
upcoming months to below the lower bound of the target, and the
shekel's recent appreciation.
(Reporting by Tova Cohen, Editing by Ari Rabinovitch and