Bank of Israel holds key rate, hopeful on economic recovery

The Bank of Israel left its benchmark interest rate unchanged at 0.1% for the third straight time on Monday, citing what it called a more hopeful economic outlook if the coronavirus outbreak is kept under control.

By Steven Scheer

JERUSALEM, Aug 24 (Reuters) - The Bank of Israel left its benchmark interest rate ILINR=ECI unchanged at 0.1% for the third straight time on Monday, citing what it called a more hopeful economic outlook if the coronavirus outbreak is kept under control.

All 13 economists polled by Reuters had believed the monetary policy committee would keep rates steady after standing pat in May and July, following a reduction from 0.25% in early April.

Despite the weak economy and high unemployment, central bank officials have been reluctant to lower the key rate from an all-time low to zero or negative territory, preferring measures such as buying currency and government and corporate bonds.

"The (monetary policy) committee will expand the use of the existing tools, including the interest rate tool (if necessary)," the central bank said in a statement.

"(It will also) operate additional ones, to the extent that it assesses that the crisis is lengthening and that it is necessary to achieve monetary policy goals and moderate the negative economic impact created as a result of the crisis."

In an updated macro forecast, the Bank of Israel said that under its optimistic scenario, the economy would shrink by 4.5% in 2020 - compared with a 6% contraction in its prior estimate - and grow 6.0% next year.

"Bringing the pandemic under control will enable a higher level of economic activity..., but the average level of activity will remain about 5% lower than the pre-crisis trend," it said.

Should the pandemic worsen, the central bank estimated a contraction of 7% this year and growth of 3% in 2021.

The bank also foresees the debt-to-GDP ratio reaching 78% in 2021 if the pandemic is contained, and 87% if it worsens.

It expects disinflation of 1-1.5% in 2020 and inflation of 0.4-0.9% next year and a jobless rate of up to 13.6% in 2020 and up to 12.1% in 2021. Interest rates in a year's time are forecast in a 0-0.1% range.

The bank further said financial markets remain stable but that a stronger shekel ILS= "is weighing on the recovery of exports, particularly in view of the decline in global demand, and on the return of the inflation to the target".

The shekel was steady at a rate of 3.40 per dollar.

(Reporting by Steven Scheer with additional reporting by Tova Cohen and Ari Rabinovitch)

((steven.scheer@thomsonreuters.com; +972 2 632 2210; Reuters Messaging: steven.scheer.thomsonreuters.com@reuters.net; Twitter: @StevenMScheer))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More