November 10, 2014 / 10:17 AM / 5 years ago

UPDATE 1-Bank of Israel mulls use of additional monetary tools -minutes

(Adds details, Bank of Israel comments)

By Steven Scheer

JERUSALEM, Nov 10 (Reuters) - The Bank of Israel said it was looking at the use of unconventional tools now that its main interest rate is near zero, minutes of its Oct. 27 policy meeting showed on Monday.

The bank held its benchmark rate at an all-time low of 0.25 percent that day, with all five monetary policy committee members voting for no rate change, the minutes showed.

The bank had lowered its key rate by a combined half-point in July and August, but left them unchanged at the past two meetings.

“Since the interest rate tool is close to full use, the committee decided to assess the use of additional tools as necessary,” the central bank minutes said.

“Committee members were of the opinion that the effects of the interest rate reductions made in recent months have not yet been fully realised, and that the low interest rate supports real economic activity and prices,” the minutes also said.

Policymakers downplayed the 0.3 percent annual fall in consumer prices in September, the first time the main inflation gauge has gone negative since 2007. They argued that the decline stemmed from lower energy and commodity prices globally, while food prices had eased partly “from the structural adjustment that has developed due to public pressure surrounding the cost of living”.

Still, the committee affirmed its commitment to achieving the government’s 1-3 percent inflation target, although the fact it is considered flexible makes it possible to temporarily deviate from the range, the central bank said.

The Bank of Israel noted that indications of a slowdown in third-quarter growth were largely due to the effects of Israel’s war in July and August in Gaza. Slumping exports and a standstill in investment contributed to the slowdown.

A weaker shekel - including a 10 percent depreciation versus the dollar since July - will support exports and economic growth as well as returning inflation to its target range, the central bank said.

The monetary policy committee usually has six members but Rafi Melnick, whose three-year term ended in October, has yet to be replaced. (Reporting by Steven Scheer; Editing by Tova Cohen and Hugh Lawson)

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