Bank of Israel interest rate unchanged, mortgage cost up

The economy continues its recovery, but the Bank fears emergence of a housing bubble.

By JPOST.COM STAFF
May 24, 2010 19:03
1 minute read.
Bank of Israel Governor Stanley Fischer

stanley fischer 311. (photo credit: Courtesy)

Bank of Israel governor Stanley Fischer on Monday decided to leave the interest rate unchanged at 1.5 percent while making mortgages more expensive. This balancing act was apparently designed to maintain growth, while letting some air out of a possible housing bubble.

The unchanged interest rate was intended to boost industry and prevent further rise in the value of the shekel.  Annual inflation is currently running at 2.7% which is within the target range, and GDP continues to grow with continued recovery in the business sector.

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The BoI's communique said that only 5% of Israel's exports are to European countries currently experiencing a debt crisis, so exposure to the crisis is low.  It warned, however, that 28% of Israeli exports are to the EU and if the crisis spreads, it will have a significant impact on Israeli exports. 

Fischer is concerned about the rapidly rising price of housing. In the year from March 2009 to February 2010 house prices in Israel rose by 22%, and there is fear that a "housing bubble" may be developing.

To prevent this, Fischer is obligating banks to increase the size of the reserves they keep for high-risk mortgages. The Bank of Israel defines high risk housing loans as mortgages where the bank is funding more then 60% of the purchase. The BoI warned that it would continue to monitor the housing market and may take further measures if necessary.


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