Israel’s economy will continue to grow both this year and next – and by a larger measure than previously thought, the Bank of Israel said. On Monday, the Bank decided to keep its prime interest rate at 0.1 percent, unchanged from previous levels, while raising its forecast for the growth of the economy his year from 2.8 percent to 3.8 percent. The forecast increase came as the result of strong economic growth factors, Bank head Karnit Flug said during a press conference announcing the forecast.
At the conference, Flug related to the recent increase in the value of the shekel versus the dollar and the euro. “After intervention by the Bank, the increase in the value of the shekel has leveled off, so we see no need to raise interest rates for that reason,” Flug said. “In the past three months the Bank has purchased $3 billion, while the shekel has appreciated by 1 percent.” It is not the shekel that is to blame for further strength, but the weakness of the dollar and euro in recent months, she added; during this period the shekel rose against the dollar by 3 percent, but it lost 3.5 percent in value to the euro – indicating that the problem was with the dollar, not the shekel.
“With that, we believe that the shekel rate is still too high, and this is due to the liberal policies central banks are taking with their currencies,” Flug said. “As we know, a disadvantageous exchange rate makes thing much more difficult for exporters, and especially manufacturers, as well as for sales. We believe that without our intervention the exchange rate would have been even more difficult. We are trying our best to balance things out in the foreign currency market – as we saw the shekel strengthen against the dollar, we saw it weaken against the shekel,” she added.