Israel Monetary Policy May 2020

Israel: Bank of Israel keeps rates unchanged in May

At its 25 May meeting, the Bank of Israel (BoI) left the policy rate at 0.10%, following a 0.15 percentage-point cut and the adoption of extra credit-enhancing measures in April.

The decision to stay put was likely driven by a desire to evaluate the impact of recent monetary stimulus measures. Moreover, the domestic economy has likely bottomed out as economic lockdown measures have been progressively lifted from mid-April, reducing the need for extra stimulus. According to BoI: “as of the middle of May, the scope of the economy’s shutdown had declined by close to half in light of the removal of the restrictions”. In light of this, the Bank also revised up its 2020 GDP forecast from a 5.3% contraction to a 4.5% contraction.

The BoI once more struck a dovish stance, and said it stands ready to “expand the use of the existing tools, including the interest rate tool, and will operate additional ones” if required. This leaves the door open to further policy rate cuts, although most panelists see rates unchanged through year-end.

According to Goldman Sachs:

“Going forward, we do not expect any rate cuts, especially as the economy seems to be opening up faster than expected. We think that a combination of Shekel strength, lower oil prices and a large output gap will keep inflationary pressures weak. Hence, we expect the BoI to have ample room to keep rates low for a considerable amount of time to help with the economic recovery.”

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