Israel Monetary Policy November 2020

Israel: Bank of Israel leaves policy unchanged in November

At its 30 November meeting, the Bank of Israel (BoI) left the policy rate at 0.10%, and announced no change to other easing measures, which include a bond purchasing program and credit facilities for firms.

The decision to keep its stance unchanged was likely to evaluate the effect of past easing. Moreover, positive vaccine developments have increased optimism regarding activity in 2021, while Israel is gradually exiting its second domestic lockdown, reducing the imminent need for further stimulus. On the other hand, extremely weak price pressures and the strong shekel ruled out any tightening.

The BoI maintained a highly dovish outlook, reiterating that it stands ready to “expand the use of the existing tools, including the interest rate tool, and will operate additional ones” if required. As such, further monetary easing is possible going forward, although this will likely be delivered through non-conventional means.

As analysts at Goldman Sachs comment:

“We think the BoI has ample room to ease policy further given sizable spare capacity in the economy, persistently weak inflation and ongoing shekel strength. Nevertheless, we expect the BoI to keep its policy rate on hold at +0.10% going forward, as it deems the policy rate low enough and is instead focusing on the transmission of low rates to the rest of the economy. Hence, we expect any additional easing to be delivered through credit/liquidity related measures.”

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