The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has kept the interest rate unchanged at its historic low of 0.1%, as expected. Economists do not see the interest rate rising above its current low level until the second half of 2022.

In explaining its decision, the Bank of Israel said, “The rapid recovery of economic activity continues as the Covid-19 pandemic subsides in Israel. The deterioration in the security situation that lasted approximately 10 days apparently had only a limited negative impact. The significant increase in consumption continued even in the industries that were particularly hard hit by the restrictions during the Covid-19 crisis.”

Discussing unemployment, the Bank of Israel continued, “The broad unemployment rate declined to 9.6%, and since the exit from the third lockdown in February, the modified employment rate has increased. Alongside this, some of the data indicate difficulties in the labor market’s recovery process: the number of job vacancies continues to rise, alongside an increase in employers’ difficulty in recruiting new workers in some industries.”

On the subject of GDP growth, the Bank of Israel added, “According to the first estimate of National Accounts data for the first quarter, GDP contracted by an annual rate of 6.5%, but first quarter data reflect a complex picture. In the first half of the quarter, the economy was under lockdown in view of peak morbidity rates from the pandemic, while the end of February and March featured a rapid exit from the crisis and recovery of the economy. First quarter GDP data were significantly impacted by vehicle imports that had been brought forward to the end of 2020 because of changes in tax rates, and by the shift of the timing of government expenditures on public consumption. Overall, the composition of uses shows a positive picture of the state of the economy.”

Moving on to home prices, the bank said, “Home prices increased by a relatively rapid rate of 4.5% in the past 12 months. Investors’ share of total home purchase transactions increased. However, the rate of increase of rental prices remained moderate.”

Regarding inflation, the Bank of Israel commented, “The inflation environment remains low, but is in an upward trend. The CPI increased by 0.3% in April, and inflation in the past 12 months is 0.8%. According to assessments, the inflation rate is expected to reach the target range following the publication of the CPI reading for May. Inflation expectations for the coming year from all sources continued to increase, and are within the inflation target range. Medium- and long-term inflation expectations also increased, and are anchored at the midpoint of the target range.”

On the shekel, the Bank of Israel added, “Since the previous interest rate decision, the shekel strengthened by 0.4% against the US dollar, and weakened by 0.5% in terms of the nominal effective exchange rate and by 1% against the euro. The deterioration in the security situation led to a short-lived increase in volatility.”

Finally on global economic development the Bank of Israel observed, “The vaccination campaign around the world is accelerating and supporting economic activity, but at the same time, there has been a worsening of morbidity in a number of emerging economies. Investment houses’ growth forecasts for most of the major economies were revised upward. The prices of agricultural commodities, metals, and oil increased, and contributed to the continued increase in inflation. Monetary policy at the major central banks remains very accommodative.”

The Bank of Israel concluded, “The return to normal life in Israel supports rapid growth in the coming year. However, 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.”

Published by Globes, Israel business news – – on May 31, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Leave a Reply

Your email address will not be published. Required fields are marked *