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Economic Context for the Monetary Committee's Interest Rate Decision - August 29, 2017

On August 29, 2017, the Monetary Committee convened to discuss interest rates amidst changing economic conditions. Inflation rates unexpectedly declined to negative values, particularly influenced by tradable goods. One-year inflation expectations are below target, despite stable medium and long-term outlooks. The shekel weakened significantly, and there has been a notable decrease in long-term bond yields. Meanwhile, home price increases have moderated, and the labor market remains stable at nearly full employment. Global economic forecasts show stable growth.

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Economic Context for the Monetary Committee's Interest Rate Decision - August 29, 2017

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  1. Main economic background data to the Monetary Committee’s interest rate decision August 29, 2017

  2. The Monetary-Financial Environment

  3. The inflation rate declined more than expected, to negative values. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Based on Central Bureau of Statistics. מקור: למ"ס ועיבודי בנק ישראל

  4. Inflation according to adjusted indices also declined to negative values מקור: למ"ס ועיבודי בנק ישראל SOURCE: Based on Central Bureau of Statistics. מקור: למ"ס ועיבודי בנק ישראל

  5. There was a sharp decline, mainly in inflation of tradable goods prices. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank of Israel. מקור: למ"ס ועיבודי בנק ישראל

  6. One-year inflation expectations from the various sources are below the target range. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank of Israel. מקור: למ"ס ועיבודי בנק ישראל

  7. Medium and long-term expectations are stable despite surprises in the CPI. מקור: למ"ס ועיבודי בנק ישראל Previous interest rate decision מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank of Israel.

  8. The shekel has weakened since the previous interest rate decision, mainly against the euro. מקור: למ"ס ועיבודי בנק ישראל Previous interest rate decision SOURCE: Based on Central Bureau of Statistics.

  9. Since the last interest rate decision, there has been a sharp decline in the yields on long-term bonds. SOURCE: Bank of Israel.

  10. Home price increases have moderated in recent months. מקור: למ"ס ועיבודי בנק ישראל מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank of Israel.

  11. The monthly flow of new mortgages increased slightly in recent months, while interest rates continued to decline. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank of Israel.

  12. Real economic activity

  13. Net of the effect of vehicle imports, the growth rate declined moderately in the first half of the year. מקור: למ"ס ועיבודי בנק ישראל מקור: למ"ס ועיבודי בנק ישראל SOURCE: Based on Central Bureau of Statistics.

  14. Goods exports declined, mainly due to temporary factors מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bank Hapoalim מקור: למ"ס ועיבודי בנק ישראל

  15. Exports have been trending upward in the past five quarters, due to services exports. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Central Bureau of Statistics.

  16. The labor market is stable at near-full employment. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Central Bureau of Statistics. מקור: למ"ס ועיבודי בנק ישראל

  17. The strong increase in the average wage continued, while the pace of business sector wage increases moderated. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Central Bureau of Statistics. מקור: למ"ס ועיבודי בנק ישראל

  18. Health tax receipts increased more rapidly in June and July, and may reflect a renewed increase in wages. מקור: למ"ס ועיבודי בנק ישראל SOURCE: National Security

  19. The global economy

  20. The global growth forecast remained stable. מקור: למ"ס ועיבודי בנק ישראל SOURCE: IMF.

  21. The growth rate of world trade increased strongly. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg. מקור: למ"ס ועיבודי בנק ישראל

  22. Purchasing managers indices indicate positive momentum in the advanced economies and some moderation in the emerging economies. מקור: למ"ס ועיבודי בנק ישראל מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg.

  23. Global inflation remains moderate, lower than the central bank targets. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg. מקור: למ"ס ועיבודי בנק ישראל

  24. Oil prices increased slightly. מקור: למ"ס ועיבודי בנק ישראל מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg.

  25. The major central banks kept their monetary policies unchanged. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg. מקור: למ"ס ועיבודי בנק ישראל

  26. Stock markets in the emerging economies showed positive momentum. מקור: למ"ס ועיבודי בנק ישראל SOURCE: Bloomberg. מקור: למ"ס ועיבודי בנק ישראל

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