Israel is set to join the “below zero” club, with the Bank of Israel likely to reduce interest rates to below zero in the coming months, said economists at Citi over the weekend. The Bank of Israel is set to announce its next interest rate setting on February 22nd, and the economists said in a report distributed over the weekend that the Bank, like other central banks, was likely to intervene more strongly in the market than it has until now in order to stabilize the economy.
On Friday, Federal Reserve chairperson Janet Yellen said that she did “not rule out” the possibility of negative interest rates in the U.S., as several European countries have already done. The Citi economists said that given the trend, and given Israel’s need to keep the shekel from being too attractive to foreign investors – and thus rising too strongly, making Israeli goods too expensive for the world market – Israel had no choice but to follow the trend, even if the local economy was in better shape than most of the economies in Europe.
In its last statement on interest rates, the Bank of Israel said that “the Bank will use the tools at its disposal, and consider the use of other tools, in order to achieve its objectives – stabilizing prices, assisting businesses, fostering growth, and ensuring the stability of the financial system. From this perspective, the Bank will continue to follow developments in the market, especially in the housing market.”