Israel Monetary Policy January 2020

Israel: Bank of Israel leaves rates unchanged in January; forward guidance remains dovish

At its 9 January meeting, the Monetary Committee of the Bank of Israel (BoI) kept the key interest rate unchanged at 0.25%, in line with market expectations.

The Bank decided to stay put despite stubbornly low inflation—which was well below the BoI’s 1.0%-3.0% target range for the sixth straight month in November amid a strong currency and low oil prices. The Bank’s decision was influenced by the solid performance of the economy, a reduction in global trade tensions, and the relative stability of the shekel since the previous meeting in November. Moreover, the Bank is currently opting for FX intervention to weaken the currency and boost inflation, and purchased roughly USD 3.5 billion in foreign currency in November–December.

The Central Bank retained its dovish stance, stating, “it will be necessary to leave the interest rate at its current level for a prolonged period or to reduce it” to ensure inflation stabilizes at the target midpoint. Our panelists are broadly split on the direction of monetary policy this year: while some see a rate cut, others see the Bank remaining on hold.

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