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UPDATE 1-Bank of Israel holds key rate as inflation rises and economy recovers

By on May 31, 2021 0

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JERUSALEM, May 31 (Reuters) – The Bank of Israel on Monday kept its benchmark interest rate at 0.1% for a ninth consecutive policy meeting, citing low but rising inflation and rapid economic recovery following the deployment rapid COVID-19 vaccine.

The 17 economists polled by Reuters had said they expected the Monetary Policy Committee to keep rates stable after doing so since cutting them 0.25% more than a year ago.

Most economists don’t expect a rate hike until at least 2022.

“The committee will continue to pursue a very accommodative monetary policy for an extended period,” the central bank said.

Israel’s inflation rate rose to 0.8% in April from 0.2% in March, just below the government’s annual target range of 1-3%. The Bank of Israel estimates that the rate will hit the target with the May CPI and, based on bond yields, it will rise to 1.7% in a year.

“Inflation expectations for the coming year from all sources have continued to rise and are within the target inflation range,” he said.

While the economy contracted 6.5% on an annualized basis in the first quarter compared to the previous three months, growth is expected to reach 4-6% in 2021.

Some 55% of Israeli adults have already been fully vaccinated while active cases of COVID-19 across Israel fell to 352 on Monday. As a result, most of the economy has reopened.

“The return to normal life in Israel supports rapid growth in the coming year,” the central bank said.

“However, there are still challenges for economic activity given the health risks in Israel and abroad and the impact on the economy, especially on the labor market.”

Data released earlier today showed the unemployment rate fell to 6.7% in the first half of May from 7.9% in the second half of April. But the central bank noted difficulties in the process of labor market recovery.

“The number of vacant positions continues to increase, along with an increased difficulty for employers to recruit new workers in certain industries,” he said, referring in part to those who prefer to receive state benefits. than going back to work.

The central bank said 11 days of fighting between Israel and Hamas “apparently had only a limited negative impact” on the economy while a “significant increase in consumption continued even in industries. who have been particularly hard hit by the restrictions during the COVID-19 crisis. . “

After the decision, the shekel was stable at 3.247 per dollar. It had gained 0.4% since the previous decision on April 19.

Central bank officials have expressed reluctance to lower the policy rate to zero or into negative territory despite a strong shekel and three lockdowns. Instead, they prefer to use other measures to stimulate the economy, such as buying currencies and government and corporate bonds. (Reporting by Steven Scheer and Ari Rabinovitch; Editing by Toby Chopra and Angus MacSwan)