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Sandro Rosell
FC Barcelona President
Tuesday, October 17, 2017

The Bank of Israel has revised its 2017 full-year forecast upward to expected growth of 3.4 percent on the back of revised export forecasts and an improvement in world trade. The figure is up from a previous forecast of 2.7%, but still lower than the 4% growth achieved in 2016.

The BOI said that after a long period in which private consumption drove growth, there were increasing signs of a return to more balanced growth in the economy, with both exports and investments contributing. It said, however, that goods exports were slow in relation to the increase in world trade as a result of the appreciation of the shekel exchange rate, while services exports increased by a rate faster than that of global growth in services.

Meanwhile, the dollar was up sharply against the shekel on Tuesday, jumping 0.7% to NIS 3.57 after the BOI decided on Monday to leave interest rates unchanged at 0.1 percent.

The BOI also noted that inflation for the 12 months ending in May was 0.8 percent – below its target rate of 1.3% – but was expected to decline in the coming months, partly as a result of an expected reduction in water and fuel prices and in the prices of after-school childcare.

The Bank said it would maintain low interest rates as as long is necessary in order to bring inflation to within the target range.

The increase in nominal wages, the strong economic environment, and inflation worldwide will act to increase the inflation rate, the BOI said, while the appreciation that has occurred in the shekel, increased competition in the economy and measures adopted by the government to reduce the cost of living will act in the opposite direction.

Economic observers do not expect any increase in the BOI’s base rate until late 2018.

With regard to the sharp increase in the value of the shekel, which has led exporters to call for urgent action, the BOI said the pace of the appreciation had moderated after a sharp rise in the effective exchange rate over the first few months of the year, but the currency remained overvalued.  

“As we have said in the past, the level of the exchange rate partly reflects the relatively good state of Israel’s economy, reflected in, for example, the current account surplus and relatively high growth. However, in our assessment as well as that of other entities in the market, the shekel is overvalued, a result of the very accommodative policy that some central banks are adopting,” the BOI said.