MoneyIsrael news photo: Flash 90

Bank of Israel Governor Stanley Fischer has left the prime interest rate unchanged at two percent  for the month of December. The Consumer Price Index (CPI) for October declined by 0.2 percent, surprising economists who had projected an increase of 0.2 percent, on average.

"The main reason for the surprise was a sharper than expected decline in the housing and the fruit and vegetable components,” the BOI said in a statement on its website. However, "Last week, Operation 'Pillar of Defense' ended, and the Bank of Israel's preliminary assessment is that the operation will have little impact on the economy's output,” the BOI said.

One consideration underlying the decision, said the Bank, was the fact that most economic indicators which became available in November, support the assessment that moderate growth in activity has continued, and is expected to continue in the coming months. The Research Department of the Bank forecast a 3.3 percent GDP growth in 2012 and 3 percent growth in 2013, with the inflation rate in 2013 expected to be 2.2 percent. 

"Various surveys of economic activity continue to indicate pessimism and projections for moderation in activity,” the Bank warned, adding that they indicated a slowdown in the third quarter of 2012 and assessments that the slowdown would continue in the fourth quarter as well.

In addition, “The level of economic risk from around the world remains high, and with it the concerns over negative effects on the local economy... Inflation worldwide continues to be low, and commodity prices, which remained stable this month, are expected to continue to support the current level of inflation.”

There was a decline in demand for consumer durable goods, investment in machinery and equipment, and investment in transport equipment, reflected in a decline in goods and services imports (excluding defense imports) of 12 percent. Simiarly, the rate of increase in the Composite State-of-the-Economy Index slowed in recent months, from an average monthly rate of 0.21 percent in January – July (an annualized rate of 2.5 percent) to an average monthly rate of 0.15 percent in August – October (an annualized rate of 1.8 percent).

But the news was not all bad: National Accounts data for the third quarter indicate that GDP increased by 2.9 percent and business sector product increased by 2.7 percent (in annual terms).  Increases of 3.5 percent in private consumption (excluding durable goods) and of 4.6 percent in exports (excluding start-ups and diamonds) contributed to the growth in GDP.

The shekel was unchanged against the dollar, in contrast with most major currencies, which weakened against the dollar. The shekel weakened by 0.2 percent against the euro.