BoI worried about filling companies’ job openings, minutes say

Israeli policy makers left short-term interest rates unchanged last month partly due to a robust labor market. But they warned that further problems in firms filling job openings could harm future growth.

All four rate setters on the Bank of Israel’s monetary policy committee (MPC) voted to hold the benchmark rate at 0.1 percent on August 29, minutes of the discussions showed on Monday, which came after stronger-than-expected second-quarter growth data.

As has been the recent trend, growth was driven by consumer spending, particularly on big-ticket items, while exports showed some recovery.

For the first half of 2016, the economy grew an annualized 2.9%, which MPC members said reflected a “growth rate consistent with a robust labor market.”

They noted the low jobless numbers (the unemployment rate in the second quarter was 4.8%) was accompanied by a continued rise in job vacancies.

“The committee referred to the increasing difficulty in filling job vacancies, and not only in hi-tech industries,” the central bank’s minutes said. “This difficulty, if it continues to increase, is liable to serve as a limitation on the growth rate in the future.”

The Bank of Israel projects economic growth of 2.4% in 2016, similar to last year. But it is expected to raise its estimate later this month.

Earlier this year, policy makers had been concerned over weak economic growth. But in its September rates decision, the central bank omitted a warning about risks to growth that had been part of its statements for a year while only keeping a warning of a risk to attaining the government’s 1%-3% annual inflation target.

In keeping rates unchanged for an 18th straight month, the Bank of Israel pointed to an improvement in the deflation trend, which it said is largely a result of the low level of inflation abroad. Israel’s annual inflation rate was minus-0.6% in July, compared with minus-0.8% in June.

Policy makers also cited high housing prices, even though the rate of increase has moderated slightly.

“Committee members assessed that the current interest-rate environment supports a continued trend of growth and employment, while the main risks to continued growth are liable to derive mainly from negative developments in the world,” the minutes said.

(Reuters)