Israel Monetary Policy February 2020

Israel: Bank of Israel stays put in February; forward guidance remains dovish

At its 24 February 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 continued to view FX market intervention, rather than monetary easing, as the most effective way to tackle the strong shekel and stubbornly low inflation—which was below the 1.0%–3.0% target range for the eighth straight month in January. The Bank stepped up FX purchases in January, buying USD 3.0 billion in foreign currency compared to USD 2.3 billion in December. Moreover, the robust economy is reducing the pressure on the Bank to cut rates.

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. The Bank also highlighted that the coronavirus was creating uncertainty regarding future economic activity. Our panelists are split on the direction of monetary policy this year: Half see the Bank trimming rates to 0.10%; the other half expect rates to remain unchanged.

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