Israel Monetary Policy November 2021

Israel: Bank of Israel leaves rates unchanged in November

At its 22 November meeting, the Bank of Israel (BoI) left the policy rate at 0.10%. The Bank also announced that its asset purchase program would end in December.

The decision to keep rates at their current level was driven on one hand by mild price pressures. Inflation and inflation expectations are both within the Bank’s 1.0%–3.0% target range, meaning there was little pressure to hike. At the same time, some lingering uncertainty over the economic outlook made it prudent to keep rates low. However, the economy was still performing strongly enough to encourage the BoI to end its asset purchase program.

In its communiqué, the BoI repeated its pledge to adopt an “accommodative monetary policy for a prolonged time”. However, most of our analysts now see a rate hike to 0.25% by the end of next year as the strong economy allows the withdrawal of some stimulus, with only a few panelists still seeing rates unchanged in 2022.

Gil Bufman, chief economist at Bank Leumi, commented:

“We currently expect the Bank of Israel’s interest rate to remain on hold, at 0.1%, until late August 2022.”

In contrast, analysts at Goldman Sachs are among those who see rates unchanged next year:

“We do not expect any rate hikes before 2023 for various reasons: (1) The BoI is focused on the economic recovery, in particular on the state of the labour market which is taking a long time to recover despite the relatively strong growth figures. (2) We expect inflation to start declining in early 2022 and fall below the BoI’s 1.0%–3.0% inflation target range in the second half of the year. (3) We remain constructive on the shekel.”

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