June 12, 2021
  • June 12, 2021

Bank of Israel to hold interest rates as inflation rises

By on May 30, 2021 0

The Governor of the Bank of Israel, Amir Yaron, in Jerusalem. June 16, 2020. REUTERS / Ronen Zvulun

The Bank of Israel is expected to leave short-term interest rates unchanged this week for its ninth consecutive policy meeting, amid higher inflation and the view that a rapid rollout of COVID-19 vaccination will revive economic growth.

The 17 economists polled by Reuters believe the Monetary Policy Committee (MPC) will keep the benchmark rate (ILINR = ECI) at an all-time low of 0.1% when the decision is announced at 4 p.m. (1 p.m. GMT) on Monday.

The next policy move is expected to be a rate hike, but not until at least 2022, with some projecting 2023.

“No change in monetary policy is expected, but a very optimistic tone is certainly expected by the Bank of Israel, given the sharp decline in morbidity and the full opening of the economy,” said Jonathan Katz , Chief Economist of Leader Capital Markets.

With 55% of adults fully vaccinated, the number of active COVID cases has fallen to less than 400 in Israel, causing the economy to almost open up and the unemployment rate to drop to 7.9%.

Economists forecast economic growth of 4-6% in 2021 after declining 2.6% in 2020. In the first quarter, the economy contracted by 6.5% on an annualized basis compared to the previous quarter. Read more

Israel’s inflation rate hit 0.8% in April after turning positive in March for the first time in a year. Based on bond yields, the rate is expected to hit 1.7% in a year, near the midpoint of the government’s annual target of 1-3%.

Bank of Israel Governor Amir Yaron told Reuters this month that interest rate hikes are quite far off given that inflation is expected to remain well contained. He said it was still too early to determine how much of the gain came from bottlenecks in the economy and adjustments in supply and demand. Read more

“At some point, depending on economic activity and depending on inflation, depending on financial stability, etc., these will be the considerations that will enact a change from the main point of interest to a change in position. (interest rates), “he said on May 10.

At the previous meeting on April 19, five of the six central bank policymakers voted to keep the key rate.

Since the start of the pandemic, the central bank has cut its key rate once – by 0.25% in April 2020. Instead, it has relied on the purchase of government and corporate bonds and on the ‘Providing low-rate loans to banks to encourage lending to small businesses.

He also bought nearly $ 20 billion in foreign currency in the first four months of this year to help stem the shekel’s gains.

Our standards: Thomson Reuters Trust Principles.