BoI keeps rate unchanged, but hikes coming soon

Amir Yaron Photo: Bank of Israel spokesperson
Amir Yaron Photo: Bank of Israel spokesperson

Bowing to rising inflation, the Bank of Israel said that in the coming months a gradual process of raising the interest rate will begin.

The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has left the interest rate unchanged at its historic low of 0.1%. However, for the first time the Bank of Israel has admitted that rate hikes can be expected in the coming months.

The Bank of Israel said, "The Israeli economy recorded high growth alongside the COVID-19 virus, and various indicators point to continued strong activity. The Committee’s assessment therefore is that in the coming months, conditions will allow for the start of a gradual process of raising the interest rate in line with the path of inflation and the pace of growth and employment, in order to continue supporting the achievement of the monetary policy goals and to ensure the continued proper functioning of the financial markets."

The Bank of Israel said, "Ongoing economic activity in Israel continues at a high level alongside the Covid-19 pandemic. The risk of further morbidity cycles remains, and is leading to continued uncertainty regarding the expected intensity of economic activity."

The Bank of Israel added, "According to National Accounts data, GDP grew by 8.1% percent in 2021, beyond the forecast growth, and per capita GDP grew by 6.3%. For the first time since the start of the COVID-19 crisis, the GDP level crossed the pre-crisis trend-line.

Despite bowing to inflation in bringing forward rate hikes, the Bank of Israel insists it is unflustered by inflation even though it has exceeded the upper limit of the 1%-3% annual target range. "Inflation in Israel is around the upper bound of the target range, and was 3.1% in the past 12 months. Inflation expectations for the coming year from most sources increased, but are within the target range, as are expectations for the medium and long terms. The inflation indices in many countries are significantly higher than the central bank targets. Monetary tightening around the world therefore continues."

On the shekel, the Bank of Israel said, "Since the previous monetary policy decision, the shekel has weakened by 3.3% against the US dollar, by 3.4% in terms of the nominal effective exchange rate, and by 3.5% percent against the euro."

On home prices the Bank of Israel continued, "The upward trend in home prices accelerated in recent months, with prices rising by 11.3% in the past 12 months, a significantly higher pace than in previous years."

On the world economic outlook the Bank of Israel concluded, "The Omicron variant’s impact on the global economy has been relatively moderate, and the recovery trend in economic activity continues. The interruptions in the global production chains continue, although with slightly less intensity."

Published by Globes, Israel business news - - on February 21, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Amir Yaron Photo: Bank of Israel spokesperson
Amir Yaron Photo: Bank of Israel spokesperson
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