Israel Monetary Policy April 2021

Israel: Bank of Israel leaves policy unchanged in April as economic outlook brightens

At its 19 April meeting, the Bank of Israel (BoI) left the policy rate at 0.10%.

The decision was driven in part by a strong rebound in activity from February as Covid-19 restrictions were rolled back amid the country’s world-beating vaccination rate, with the BoI now seeing GDP growth of 6.3% this year. Moreover, price pressures have gradually intensified so far this year, with month-on-month inflation readings for February and March exceeding the Bank’s expectations, reducing the need for further stimulus. However, year-on-year inflation is still well below the 1.0%–3.0% target range, meaning it was premature to begin raising rates.

The BoI adopted more hawkish forward guidance in light of the improved economic outlook, dropping the explicit mention of providing further monetary easing. The Bank stated that it would “continue to conduct a very accommodative monetary policy for a prolonged time”, as opposed to the previous guidance that it was prepared to “expand the use of the existing tools, including the interest rate tool”. This suggests the policy rate is likely to stay unchanged for the foreseeable future.

According to analysts at Goldman Sachs:

“Going forward, we expect the BoI to keep its policy rate on hold for a prolonged period, as we think that inflation is likely to moderate once again in 2022 after rising sharply in the next few months and hovering around the lower bound of the 1–3% inflation target range of the BoI. We also think that the underlying appreciation pressures on the shekel remain which should contribute to dovish policy. We see the first rate hike only in 2023Q1.”

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