BoI keeps rate unchanged, cuts 2021 growth forecast

The Bank of Israel warns that the Delta variant will hit the recovery of businesses that rely on foreign tourism.

The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has kept the interest rate for July unchanged at its historic low of 0.1%, and conveyed the message that the rate will remain low for a protracted period.

The Bank of Israel Research Department sees 2021 GDP growth of 5.5%, rising to 6% in 2022. This is a downward revision from its previous forecast of 6.3% growth in 2021 but higher than its previous 2022 growth forecast of 5%.

The Bank of Israel sees broad unemployment falling to 5.5% by the end of 2022. The Bank of Israel sees inflation rising to 1% over the next 12 months and to 1.2% in 2022, similar to its previous forecasts.

The Bank of Israel expects the state budget to be passed by the end of the year, with fiscal consolidation postponed until 2023. Regarding the fiscal deficit, the Bank of Israel forecasts that it will narrow to 7.1% of GDP by the end of 2021, compared with its previous forecast of 8.2%, narrowing further to 3.8% of GDP by the end of 2022, compared with its previous forecast of 3.6%.

The Bank of Israel said, "There are still challenges to economic activity in view of the health risks in Israel and abroad and the impact to the economy, particularly the labor market. The Committee will therefore continue to conduct a very accommodative monetary policy for a prolonged time, using a range of tools as necessary, including the interest rate tool, in order to continue supporting the attainment of the policy targets and the recovery of the economy from the crisis, and to ensure the continued orderly functioning of the financial markets."

Despite the rise in infection rates over the past week, the Bank of Israerl is not too disturbed. "From mid-June, we have seen an increase in the number of Covid-19 patients as a result of the spread of the "Delta Variant". At this stage, the morbidity level is low, but the spread of the disease poses some risk to the continued recovery of the economy, mainly to businesses that rely on foreign tourists."

The Monetary Committee has also decided to end the program providing long-term loans to the banking system against loans to be provided to small and micro businesses on October 1, 2021, or upon the utilization of NIS 40 billion in the program.

Published by Globes, Israel business news - - on July 5, 2021

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