BoI keeps interest rate unchanged, cuts growth forecast

Amir Yaron  photo: Rafi Kutz
Amir Yaron photo: Rafi Kutz

The Bank of Israel Research Department now sees the Israeli economy growing by 2.9% in 2020 instead of 3.2% as previously forecast.

The Bank of Israel Monetary Committee decided today to keep the bank's key lending rate unchanged at 0.25%. The decision is in accordance with market expectations.

The Bank of Israel Research Department has lowered its growth forecast for the Israeli economy, and now sees growth of 2.9% in GDP in 2020. The previous forecast was for 3.2% growth. The forecast includes the effect of the start of gas production from the Leviathan reservoir, which the Research Department believes will add 0.3% to GDP in 2020.

The Research Department forecasts an inflation rate of 1% in 2020, which is lower than its previous inflation forecast for this year of 1.4%. The Bank of Israel's interest rate is projected to be 0.25% or 0.1% in a year's time.

The Monetary Committee said in its interest rate announcement: "The Monetary Committee's assessment is that in view of the inflation environment in Israel, the monetary policies of major central banks, developments in the global economy and the risks to the domestic economy, and the development of the exchange rate, it will be necessary to leave the interest rate at its current level for a prolonged period or to reduce it in order to support a process at the end of which inflation will stabilize around the midpoint of the target range, and so that the economy will continue to grow strongly.

"Furthermore, the Committee is taking additional steps as necessary to make monetary policy more accommodative. The Bank of Israel continues to monitor developments in inflation, the real economy, fiscal policy, the financial markets, and the global economy, and will act to attain the monetary policy targets in accordance with such developments."

Governor of the Bank of Israel Amir Yaron said in his press briefing following the interest rate announcement, "Growth in major economies is expected to continue to moderate in 2020, but the risks of a marked deterioration in the global economy declined, and growth is expected to improve in 2021. Likewise, there is greater certainty regarding the future path of major central banks’ monetary policy. However, in contrast, the interim government budget will have a contractionary effect in the coming months, and there continues to be considerable uncertainty regarding budget policy after the elections, and its ramifications."

In December, the Bank of Israel bought $2.26 billion on the foreign currency market in order to moderate the trend of a strengthening shekel.

Published by Globes, Israel business news - - on January 9, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Amir Yaron  photo: Rafi Kutz
Amir Yaron photo: Rafi Kutz
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