Bank of Israel Holds Rates, Sees Economic Risks of Delta Variant
JERUSALEM (Reuters) – The Bank of Israel kept its benchmark interest rate at 0.1% for a 10th consecutive policy meeting on Monday, citing risks to the economic recovery of the emerging Delta variant in the COVID pandemic- 19.
Inflation has started to rise in Israel but, like other central banks, policymakers have said it is difficult to determine whether the rise is transient and whether concerns about a pandemic remain.
As the Israeli economy is wide open amid a sharp drop in viral infections, the number of cases has steadily increased in recent weeks.
“At this stage, the level of morbidity is low, but the spread of the disease presents a certain risk for the continued recovery of the economy,” the central bank said in a statement, largely referring to the labor market. .
“The (monetary) committee will therefore continue to pursue a very accommodative monetary policy for an extended period.”
Bank staff lowered their estimate of economic growth for 2021 to 5.5 percent from 6.3 percent, but forecast 6 percent growth in 2022.
The 16 economists polled by Reuters had said they expected the Monetary Policy Committee to keep rates stable after cutting it 0.25% more than a year ago.
With the next widely expected rate hike in 2022 or 2023, analysts had asked for more clarity from the Bank of Israel on its quantitative easing (QE) programs. The central bank is some NIS 20 billion of a planned ceiling of NIS 85 billion ($ 26 billion) on government bond purchases that have stabilized bond yields.
Bank of Israel Governor Amir Yaron said given the current buying rate, the program is expected to end by the end of the year.
“Closer to this period, we will announce our measures, and they will of course be conditional on market conditions at the time,” he told a press conference.
The central bank also bought $ 22 billion worth of foreign currency in the first five months of 2021 of the $ 30 billion planned in a bid to contain a strong shekel.
Yaron said that “we are certainly not limited to a maximum intervention of $ 30 billion for this year – at the end of the program”, and the bank will continue to act in the forex market as needed and taking into account of economic activity.
The shekel was stable at 3.26 per dollar at the end of the session.
The Bank of Israel has said, however, that it will end a program of long-term lending to the banking system for loans to small businesses by October 1.
Israel’s inflation rate jumped to 1.5% in May – near the midpoint of the government’s annual target range of 1-3% – from 0.8% in April.
Central bank economists forecast an inflation rate of 1.7% in 2021 and 1.2% in 2022, with the key rate unchanged next year.
They also anticipate a decrease in the budget deficit to 7.1% of gross domestic product in 2021 and 3.8% in 2022 after reaching 11.6% last year.
($ 1 = NIS 3.2629)
Reporting by Steven Scheer and Ari Rabinovitch; Editing by Toby Chopra