monetary policy summary of 2007 and looking ahead to 2008
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Monetary Policy Summary of 2007 and Looking Ahead to 2008. January 2008. Inflation in Israel and around the world. Inflation in the last 12 months and the inflation targets, 1997−2007. The Bank of Israel interest rate, actual inflation,* and inflation expectations,** 2004-08. Percent. - PowerPoint PPT PresentationTRANSCRIPT
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Monetary PolicyMonetary Policy Summary of 2007Summary of 2007
andand
Looking Ahead to 2008Looking Ahead to 2008
January 2008January 2008
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Inflation in Israel and around the world
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Inflation in the last 12 months and the inflation targets, 1997−2007
-3
2
7
12
17
94 95 96 97 98 99 00 01 02 03 04 05 06 07
Percent
Inflation in previous 12 months
Inflation targets
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-4
-3
-2
-1
0
1
2
3
4
5
6
01/0
4
04/0
4
07/0
4
10/0
4
01/0
5
04/0
5
07/0
5
10/0
5
01/0
6
04/0
6
07/0
6
10/0
6
01/0
7
04/0
7
07/0
7
10/0
7
01/0
8
Bank of Israel interest rate
Inflation expectations
Actual inflation
Percent
The Bank of Israel interest rate, actual inflation,* and inflation expectations,** 2004-08
**For next 12 months.
SOURCE: Bank of Israel Monetary Department.
*In previous 12 months.
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Inflation in previous 12 months (to November 2007) in Israel and selected emerging markets and advanced economies
0
1
2
3
4
5
6
7
8
9
Emerging marketsAdvanced economies
Percent
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The CPI, the Energy Price Index, and the Basic Foods Price Index *
(rate of change in previous 12 months, to November 2007) Percent
-10
-5
0
5
10
15
20
25
30
Energy Price Index
Index of Basic Food Prices
CPI
*Basic foods—Bread, cereals and baked goods, fats and margarine.
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The CPI, and the index excluding energy and basic food prices
(rate of change over previous 12 months, to November 2007)
Percent
-4
-2
0
2
4
6
8
CPI excluding energy and basic
food prices
CPI
*Basic foods—Bread, cereals and baked goods (?), fats and margarine.
.
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Inflation expectations based on the market and forecasters predictions
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Inflation in 12 previous months, inflation targets, and one-year inflation expectations
based on the market, 1997─2007
-3
-1
1
3
5
7
9
11
Percent
Inflation expectations
CPI
Limit of inflation target
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Long-term inflation expectations(average of ten to twelve years forward, January 2003 to December 2007)
0
1
2
3
4
5
6Percent
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Inflation expectations for the next 12 months based on the capital market and forecasters’
predictions
SOURCE: Bank of Israel Monetary Department.
0
1
2
3
4
Jan-
03A
pr-0
3Ju
l-03
Oct-
03Ja
n-04
Apr
-04
Jul-0
4O
ct-04
Jan-
05A
pr-0
5Ju
l-05
Oct-
05Ja
n-06
Apr
-06
Jul-0
6O
ct-06
Jan-
07A
pr-0
7Ju
l-07
Oct-
07
RangeAverage of forecasters' predictionsExpectations based on capital market
Percent
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The Exchange Rate
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The exchange rate 1 January 2001 to 8 January 2008
3.7
4.2
4.7
5.2
5.7
6.2
NIS/$ NIS/€
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The real exchange rate vis-à-vis Israel’s trading partners (January 1997─December 2007*)
SOURCE: IFS data. August−December 2007 figures calculated by Bank of Israel.
85
90
95
100
105
110
115
120
125
130
135
Percent
124.8
•A rise in the index indicates depreciation.
•The figure for December 2007 is calculated from spot exchange rates known for the half-month, our forecast CPI from the monthly model, and an extrapolation of inflation in the countries whose currencies are in the currency basket.
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The current account of the balance of payments(percent of GDP in annual terms, 1995─2007*)
-5.1 -5.0
-3.1
-0.9-1.4
-0.8 -1.1 -0.8
1.2
2.43.3
5.6
3.0
-6.5
-4.5
-2.5
-0.5
1.5
3.5
5.5
SOURCE: Balance of payments, Central Bureau of Statistics.
Percent of
GDP
* Estimate
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0
2
4
6
8
10
12
14
16
18
20
2000 2001 2002 2003 2004 2005 2006 2007F
Direct investments Portfolio investments
0235689
1112141517
2000 2001 2002 2003 2004 2005 2006 2007F
Direct investments Portfolio investments
Percent of GDP
Percent of GDP
8,092
14,302
4,792
4,1386,871
2,0413,822
1,812
1,767
7233,626
755,062
5,058
8,956
14,3998,244
2,9304,544
2,381
2,0653,154
2,708982
1,623688
2,149
3,336
9,700
450
6,100
5,900
* Forecast by the Bank of Israel Foreign Exchange Activity Department.
Nonresidents’ investments in Israel (percent of GDP, 2000─07*)
Israelis’ investments abroad (percent of GDP, 2000─07*)
SOURCE: Balance of payments, Central Bureau and Statistics.
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The CPI, the housing index, and the NIS/$ exchange rate
)rate of change in previous 12 months(
-4
-2
0
2
4
6
8
10
12
Percent
-15
-10
-5
0
5
10
15
20
25CPIExchange rateHousing index
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Looking ahead
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Inflation forecasts for 2008 (at end of 2007)
Forecasters—2.7 percent (2.0─3.7 percent) Capital market—1.6 percent BoI Companies Survey—2.7 percent
(74 percent of respondents believe that we will meet the inflation target)
The Bank of Israel models According to both models, at the current level of the
exchange rate the current interest rate environment is consistent with inflation of 2 percent at the end of 2008
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Percent
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
*The fan covers 66 percent of the distribution of expected inflation.
SOURCE: Bank of Israel Monetary Department.
Actual inflation and fan chart of expected inflation, 2006─2009(Rate of cumulative price increases in previous 4 quarters)
38%
32%
30%
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Thank you