Recent Economic Developments, 111

Overview:

During the period reviewed, April—September 2005, the rapid growth rate that has characterized the economy in the last two years continued, but was not uniform for all industries: it accelerated primarily in commerce, services and tourism but slowed in manufacturing, including manufactured exports. Despite the heterogeneity of economic activity, the continued growth and expectations of persistent positive trends found expression in the labor market, in the stability of the capital market, and in the high level of yields,
particularly of shares. The rise in domestic demand and local-currency depreciation during the period reviewed led to some increases in prices and inflation expectations. These developments, alongside a narrowing of the gap between local-currency and dollar yields, led the Bank of Israel to raise its interest rate towards the end of the period.

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