Israel Monetary Policy October 2021

Israel: Bank of Israel leaves rates unchanged in October, but turns more hawkish

At its 7 October meeting, the Bank of Israel (BoI) left the policy rate at 0.10%.

The decision to keep rates stable at their current low level was likely driven by continued uncertainty over the economic outlook, due to the possibility of further waves of Covid-19. Moreover, although inflation has risen substantially in recent months, it remains within the 1.0%–3.0% target range—as do inflation expectations. As such, the Bank had the space to maintain an accommodative stance.

In its communiqué, the BoI took a more hawkish stance, pledging to adopt an “accommodative monetary policy” rather than the prior meeting’s promise of a “very accommodative monetary policy”. Moreover, the Bank mentioned that its various quantitative easing programs could be ended in the next few months if growth remains healthy. That said, most panelists still see the policy rate remaining at 0.10% until 2023, as current price pressures are partly transitory. Moreover, following many years of extremely weak inflation, the Bank will likely be looking to ensure market inflation expectations become solidified within the target range.

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