Governor of the Bank of Israel Dr. Karnit Flug has criticized the imposition of trade tariffs in an interview with "Bloomberg TV." She sidestepped a specific question about the tariffs on steel imports introduced by US President Donald Trump's but added that a trade war threatens the global economy.
Flug said “I think if we go back from free trade this is bad news for the global economy, and it’s certainly bad news for small, open economies such as Israel’s. I think we all benefit from free trade.”
On interest rates, asked whether recent US rate hikes would influence Israel's interest rate, pegged at a historic low of 0.1% since March 2015, she said, "I think that tighter monetary policy, to the extent that it reflects better economic performance in the US, is good news for the Israeli economy. But generally, our policy is based on developments here.”
She insists that Israel's interest rate will stay low until the inflationary environment is “entrenched” within the bank’s target range of 1% to 3%. Inflation in Israel over the past 12 months has been just 0.2% and there was negative inflation in 2014, 2015 and 2016.
On the strength of the shekel, Flug said that this essentially reflected the strength of the Israeli economy which grew 3.6% on an annualized basis in the final quarter of 2017.
“I think there’s some excessive pressure toward appreciation which is related to the relative accommodation of monetary policy, and that’s what we’ve tried to offset by our intervention in the foreign exchange market,” she said referring to the Bank of Israel's large purchases of foreign currency to help exporters by weakening the shekel.
Published by Globes [online], Israel business news - www.globes-online.com - on March 30, 2018
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