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BoI's Acccomodative Policy

Today, Dr. Karnit Flug, Bank of Israel Governor, talked about a "accomodative monetary policy" due to an environment "complex" to introduce BoI's decision on interest rate of April 2016. The other main new is unemployment digits of Februar 2016 which was also quoted in Flug's speech.

Let's talk about the BoI's decision

BoI's Accomodative Policy

Today, BoI released April 2016's interest rate decision joined by Flug's speech introducing the decision and forecast of the institution for Israel and the world.

The BoI's interest rate remains unchanged for April 2016. According to the forecast, interest rate is changing in 2017. In 2017, inflation rate in Israel will be 1.4 whereas it is at 0.2 in 2016.

To explain why the BoI has an acccomodative policy, Flug presents the housing market. Housing prices rose so did the sales "despite the increase in mortgage interest rate". The danger of inflation is through these figures, because the inflation will grow as figures showed previously. The credit will be less affordable because of this trend.

Other reason to the accomodative policy is that the world is divided between the USA in a "moderate" growth, whereas Europe and Japan dived to curb inflation and create growth. Last week, ECB decided to lower its three interest rates coupled with a policy of credit easing.

Facing challenges

In her speech, Dr. Flug underlined the fact that the BoI helped and continued to do so in order to grow exports. Flug noted: "Israeli exports increased more slowly than world trade". We can add also the forecast of 3.5% of exports in 2016, and 5.6% for 2017.

Previously, I wrote: "the credit will be less affordable". Today, the Central Bureau of Statistics published Labour Force Survey Data for February 2016. The unemployment rate increased in February 2016 at 5.3% whereas it was 5.1% in January 2016. The unemployment increased as for the full-time workers (+0.4% compared to January 2016) as for the part-time workers (+1.4% compared to January 2016). The participation rate declined also: from 64.2% in January 2016 to 63.9% in February 2016.

The Shekel-Dollar rate: a decisional point

The BoI wrote in its press release the evolution of the shekel-dollar rate. BoI noted the "appreciation of 6 percent in terms of the nominal effective exchange rate" The appreciation of shekel to dollar slows exports and growth. It determined many things, but, until now, few solutions have been found to resolve this problem like to buy dollars to strenghten shekel. Interest rates should have been hiked before long as said Flug, but the strenghten of dollar is a danger to Israel's equilibrum and can slow all the Israeli economy.