Bank of Israel Forecasting Gets Real During Pandemic

The Bank of Israel building in Yerushalayim. (Reuters/Ronen Zvulun/File Photo)

Swiped a credit card? Turned on the lights? Driven to work or the supermarket? Israel‘s central bank has been watching.

With traditional indicators like inflation and unemployment arriving too late or unreliable due to COVID-19 disruptions and lockdowns, the Bank of Israel has turned to real-time data including cellphone tracking and electricity usage to make quick calls on the pandemic-hit economy.

In normal times such information is too short-sighted to be helpful. But with things developing rapidly, it has given critical insight into people’s habits, said Deputy Governor Andrew Abir.

“It was the only thing we did have that we could trust,” Abir told Reuters. “Other data we couldn’t trust or we were getting data from February-March. If you are in May what does February-March data help you?”

“The problem for central banks and other economic decision makers is all the normal data that you get is just too much in delay, or even worse, the actual collection of the data has been completely disturbed,” he said.

Like many central banks, the Bank of Israel cut its benchmark interest rate and launched a bond-buying scheme when government restrictions to combat the coronavirus outbreak forced many businesses to close and sent unemployment and debt yields soaring. It has not ruled out taking more measures to help the economy recover from a forecast 4.5% contraction this year.

European authorities who have long used some real-time data sources to complement regular indicators are increasing their reliance on these as well.

The Irish central bank said in April it was developing a number of rapid indicators like card-spending, while French government forecasters turned to bank-card data and electricity usage as part of what they call a “nowcasting model.”

Abir said the central bank was analyzing data provided by Apple and Google showing people’s movement via their mobile phones. Both companies made the information public, while keeping individual identities private, to help authorities better respond to the global health crisis.

Mobility data, Abir said, “tells us every day exactly what people were doing.” When traffic returned to commercial hubs, for example, it signaled many furloughs were coming to an end.

The bank also tracked a 13%-dip in workday electricity consumption in April, when it cut interest rates, and saw a slight recovery in May, when it held them steady.

Credit-card use showed in real-time people spending big sums in supermarkets and pharmacies while restaurants and tourism suffered.

Abir noted that the data, though volatile, currently shows spending is around 90% of normal.

“It’s giving us an idea that, yes, people are getting back to normal life, but it’s not complete,” he said.

Israel was one of the first countries to close its borders and impose nationwide restrictions. It has reported 307 COVID-19 deaths, fewer than many developed countries.

Daily infections dropped to single digits last month, but the rate has increased since restrictions were eased, something Abir said he would be watching closely.

The bank is also pushing lenders for more timely information on how much credit is being injected into the economy.

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