The Bank of Israel left its benchmark interest rate at its all-time low of 0.1% on Monday, retaining the figure for the 13th consecutive meeting. The bank cited “uncertainty regarding economic activity” following the COVID-19 pandemic, even as the inflation rate lowered to 2.3%. The bank said inflation expectations in Israel were “within our target range.”
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.
The bank had indicated in recent months that it would be open to increasing the interest rate in 2022.
“Labor market data show that the economy is facing some difficulty returning to the employment and unemployment levels that were typical of the pre-crisis period,” said the Bank of Israel, adding that housing prices have risen 10% over the past year, “a high rate compared to previous years.”
The bank said it completed the purchase of $30 billion in foreign exchange, a plan first announced in January, to curb the rise of the shekel, after it bought $20 billion worth of foreign currency in 2020. The bank has purchased billions of dollars annually as part of a strategy first put in place during the global financial crisis of 2008. But the $30 billion target was hit on October 27, and the central bank has not said it will extend the program, turning to ad hoc interventions instead, when needed.
The bank said Israel was continuing to “enjoy an expansion of economic activity despite still coping with the COVID-19 virus. However, there is still some uncertainty regarding economic activity in the medium term, particularly regarding the state of the labor market, and in view of the risk of further morbidity cycles in Israel and abroad.”
The economy “is facing some difficulty returning to the employment and unemployment levels that were typical of the pre-crisis period,” the bank said. The unemployment rate in Israel dropped to 7% in October, from 7.9% a month earlier, the Central Bureau of Statistics announced Monday. Before the pandemic, the rate stood at roughly 3.5%.
“The Israeli economy’s process of recovery from the crisis continues. However, there are still challenges to economic activity,” the bank 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.”
The Bank of Israel also announced that its government bond buying programs, announced in 2020, would end next month.
Shoshanna Solomon contributed to this report.