The benchmark interest rate will remain at 0.1%, the Bank of Israel said Monday. It is the 11th straight month for Israel’s lowest lending rate ever.
The decision is in line with the trend of other central banks around the world. The benchmark interest rate in the US is currently 0.25%, also an all-time low. Most analysts expect the Bank of Israel to keep the interest rate unchanged until nearly the end of the year.
“The inflation environment remains low but continues to trend moderately upward,” the central bank said. “The CPI for January declined by 0.1% following an identical rate of decline in December, and inflation in the past 12 months was minus-0.4%. Against the background of the accommodative policy and the global inflation environment, inflation expectations for the coming year from all sources increased and are around the lower bound of the target range.”
The shekel weakened to NIS 3.27 against the dollar on Monday and has declined about 1.8% since the previous interest-rate decision. It was at NIS 3.97 against the euro, down about 0.6% since then.
This trend is expected to support export performance in the exit from the coronavirus crisis and a return of inflation to within the target range, the central bank said.
GDP contracted 2.4% in 2020, and per capita GDP contracted 4.1%, less than had been forecasted. Despite the second lockdown in October and the start of the third lockdown at the end of December, GDP grew 6.3% in the fourth quarter, the central bank said.
The overall unemployment rate increased during the third lockdown to about 20% in the second half of January, after having declined to about 13% during the period between the lockdowns, the Bank of Israel said.