Israel’s central bank left its key interest rate unchanged on Monday, and said it will expand the use of its existing policy tools and also launch new ones.
The Monetary Committee decided to keep the interest rate unchanged at 0.1 percent, the Bank of Israel said in a statement. The previous change in the interest rate was a 15 basis points reduction in April last year.
The central bank noted that the fast pace of the inoculation process against the coronavirus in Israel increases the optimism regarding a rapid return of the economy to a path of growth in the coming year.
But, the risks to economic activity remain high, and the adverse impact on the economy, and particularly on the labor market, is expected to be prolonged, the bank added.
“The Committee will therefore continue to utilize a range of tools in order to increase the extent of the monetary policy accommodation and to ensure the continued orderly functioning of the financial markets,” the BoI said.
“The Committee will expand the use of the existing tools, including the interest rate tool, and will operate additional ones, to the extent that it assesses that it is necessary in order to achieve the monetary policy goals and to moderate the adverse economic impact resulting from the crisis.”
Under a rapid vaccination scenario, the central bank projected GDP growth at 6.3 percent next year and 5.8 percent in the year after. In a slow vaccination scenario, economic growth would be 3.5 percent this year and 6.0 percent next year.
“In view of the fast pace of inoculations so far, it seems that the rapid inoculation scenario is more likely to come about than the slow inoculation scenario,” the bank said.
The BoI Research Department also projected the interest rate to remain very low at 0-0.1 percent, and forecast that the bank will continue to enhance the extent of monetary policy accommodation as needed.
The central bank expects the appreciation of the shekel to have some impact on exports going forward and the continued strengthening to lead to a further slowing of inflation.