The Bank of Israel Monetary Committee headed by Governor Prof. Amir Yaron has decided to keep the interest rate unchanged at its historic low of 0.1%, as expected.
At the same time the Bank of Israel expresses cautious optimism about 2021 in light of Israel's vaccination drive. "The fast pace of the inoculation process in Israel increases the optimism regarding a rapid return of the economy to a path of growth in the coming year. However, the risks to economic activity remain high, and the adverse impact on the economy, and particularly on the labor market, is expected to be prolonged. The Committee will therefore continue to utilize a range of tools in order to increase the extent of the monetary policy accommodation and to ensure the continued orderly functioning of the financial markets. The Committee will expand the use of the existing tools, including the interest rate tool, and will operate additional ones, to the extent that it assesses that it is necessary in order to achieve the monetary policy goals and to moderate the adverse economic impact resulting from the crisis."
The Bank of Israel Research Department revised its growth forecast for the coming two years, and estimates that the contraction of GDP in 2020 will be about 3.7%.
The Bank of Israel added, "The revised forecast features two potential scenarios that are influenced by the pace of inoculation of the population. In view of the start of the inoculation campaign, both scenarios are more positive than the forecast published in October. In the rapid inoculation scenario, in which toward the end of the second quarter the government no longer places significant restrictions on economic activity for health reasons, GDP is expected to grow by 6.3% in 2021, and the broad unemployment rate is expected to decline during the year to 7.7% of the labor force in the fourth quarter of 2021."
"In 2022, GDP is expected to grow by 5.8%, the unemployment rate is expected to continue to decline to 5.4%, and the debt to GDP ratio is expected to be 75%. In the slower inoculation scenario, which will last until the middle of 2022, GDP is expected to grow by 3.5% in 2021, and the broad unemployment rate is expected to decline to about 11%. In 2022, GDP growth is expected to be 6%, while unemployment is expected to decline to 7%, and the debt to GDP ratio in 2022 is expected to be 82%. In view of the fast pace of inoculation, it seems that currently, the rapid inoculation scenario is significantly more likely to play out than the slow scenario."
Published by Globes, Israel business news - en.globes.co.il - on January 4, 2021
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