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Bank of Israel holds benchmark interest rate unchanged at 0.1%

Citing increased coronavirus morbidity, central bank maintains rate for 14th consecutive policy meeting

Ricky Ben-David is The Times of Israel’s Startups and Business editor and reporter.

Bank of Israel Governor Amir Yaron speaks during a press conference at the Bank of Israel in Jerusalem on January 7, 2019. (Noam Revkin Fenton/Flash90)
Bank of Israel Governor Amir Yaron speaks during a press conference at the Bank of Israel in Jerusalem on January 7, 2019. (Noam Revkin Fenton/Flash90)

The Bank of Israel left its benchmark interest rate at its all-time low of 0.1% on Monday, retaining the figure for the 14th consecutive policy meeting. The bank cited the current Omicron wave of the COVID-19 pandemic and an increase in morbidity rates, which it said may pose a risk to economic activity and may have “macroeconomic significance in accordance with their scope.”

The central bank’s monetary policy committee cut the interest rate from 0.25% to 0.1% at the start of the pandemic, and has left it in place ever since.

Economic activity in Israel “continues apace” and unemployment figures are down but another wave of infections is “leading to an increase in uncertainty regarding the intensity of economic activity in the short and medium term,” the central bank said in a statement Monday.

With a strong shekel keeping import prices down, the bank said inflation was forecast at 2.4% in 2021 and expectations for 2022 in the medium and long terms were “within the target range.” The shekel had climbed to a 26-year high in November.

The bank said Monday that it was revising its estimates on GDP growth for 2022 from 6.5% to 5.5%, and 5% in 2023.

“The Israeli economy’s process of recovery from the crisis continues,” the Bank of Israel said, adding that it will “continue to conduct an accommodative monetary policy for a prolonged time, in accordance with the pace of growth, employment, and the path of inflation. This is in order to continue supporting the attainment of the policy targets and the economic recovery from the crisis, and to ensure the continued orderly functioning of the financial markets.”

Israel had been enjoying a bounce-back of the economy in 2021, having weathered the fourth wave of the pandemic over the past summer, quickly tightening some restrictions, launching a booster vaccination campaign. and approving vaccines for kids aged 5-11. In early December, an OECD report said that activity rebounded strongly in 2021 and GDP was projected to grow robustly by 6.3% that year.

The OECD projected that Israel’s GDP would grow 4.9% in 2022 and 4% in 2023.

A Dun & Bradstreet report last week said Israel’s economy grew by 7% in 2021, beating out a global average of 5.9%.

Over the past five weeks, infection rates fueled by the highly contagious Omicron variant have grown steadily, reaching 6,500 new cases on Sunday according to Health Ministry figures, about double the tally from a week earlier.

Health experts believe the overall number of infected Israelis is, in reality, much higher and that many cases are going undetected due to a lack of testing availability. With Israel currently seeing over 5,000 daily cases in recent days, testing centers have been swamped across the country.

On Sunday, Bennett announced that a fourth vaccine shot would be made available to people at least 60 years old or medical staff, but also warned that the country needed to prepare for the possibility that new infection numbers could reach 50,000 a day.

Health Minister Nitzan Horowitz on Monday attempted to temper concerns of rocketing morbidity rates on Monday, telling a Meretz party faction meeting that there was “no need to panic.”

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