Bank of Israel Leaves Interest Rate Unchanged as Economy Exits Pandemic
The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, decided on Monday to keep the interest rate unchanged at its historic low of 0.1%, as expected.
It was the eighth consecutive time the central bank has done so.
The BoI cited improving economic conditions. “The Israeli economy is recovering at a rapid pace, following the exit from the third lockdown,” it said in a statement. “The effectiveness of the vaccination program has led to a sharp decline in morbidity rates, and has allowed a broad relaxation of the limitations on activity.”
The bank’s Research Department’s staff forecast projects that GDP will grow by 6.3% in 2021, the same as its previous forecast for an optimistic scenario regarding Covid-19.
The unemployment rate is expected to decline to 7.5% by the end of 2021. In 2022, growth of 5% is expected, so that the level of GDP in 2022 is expected to be only 1.4% lower than the level that had been expected prior to the pandemic. The unemployment rate in 2022 is expected to continue to decline, to about 6% in the fourth quarter of the year, still higher than the pre-crisis level.
In its report, the BoI added, “The inflation environment remains low, but a moderate upward trend continues. The CPI increased by 0.6% in March, following an increase of 0.3% in the February CPI – both higher than expected -and inflation in the past 12 months is 0.2%. Inflation expectations for the coming year from all sources increased, and are at the lower bound of the inflation target range (1%-3%). Medium- and long-term inflation expectations are anchored within the target range.
Regarding the shekel, “Since the previous interest rate decision, the shekel strengthened by 1% in terms of the nominal effective exchange rate and against the euro, while it weakened by 0.4% against the dollar.
The budget deficit is expected to lessen to 8.2% of GDP by the end of 2021, from 11.6% at the end of 2020.
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