Bank of Israel keeps interest rate at record-low 0.1%

The benchmark interest rate in the United States is currently 0.25%, also an all-time low.

An Israeli flag flutters outside the Bank of Israel building in Jerusalem (photo credit: REUTERS)
An Israeli flag flutters outside the Bank of Israel building in Jerusalem
(photo credit: REUTERS)
The Bank of Israel is keeping the benchmark interest rate at 0.1% as expected. It is Israel’s 10th straight month at its lowest lending rate ever, in line with the trend of other central banks around the world.
“The global economy is recovering, but uncertainty continues in light of the start of vaccination campaigns on the one hand and the spread of the disease on the other,” the central bank announced Monday. “High variability is expected in the growth rate of the various economies in 2021, and some countries are not expected to fully recover from the crisis even in 2022, especially if there are further outbreaks of the virus and the rate of vaccinations is slow. Monetary policy in major central banks continues to be very expansionary.”
 The decision was no surprise to analysts.
“The zero interest rate is going to stay with us for a long time,” Bank Hapoalim said Sunday in its weekly report to investors. “The governor of the Bank of Israel predicted last week that interest rates will remain low over time in Israel and around the world. In our estimation, it will take a long time before inflation returns to being a consideration in the interest-rate decision in Israel, and it is unlikely that this will happen before the US, where inflationary pressures have risen.”
“Currently, the yield-curve slope does not indicate an interest-rate hike until mid-2022, i.e., a year and a half from today, and then an interest rate of 0.5% in 2023,” the report said.
The benchmark interest rate in the US is currently 0.25%, also an all-time low.
Inflation is not expected to rise to a level that would force the central bank to change course, the Hapoalim analysts noted.
“The risk of inflation in the world is rising, but in Israel, the appreciation of the shekel offsets much of the effects of world price increases,” Hapoalim said in a statement. “We leave the inflation forecast for the next 12 months at a level of 0.5%, despite the appreciation of the shekel, due to an increase in the global inflation environment.”
At NIS 3.21 to the dollar, the shekel is currently at its strongest rate in more than 23 years.
Leader Capital Markets analysts also said they expect the interest rate to remain at 0.1% through at least the end of 2021.
“Although one member of the monetary board advocates lowering interest rates to zero (at least), most others believe that there is no benefit in further lowering interest rates,” they said in a statement. “No change in the Bank of Israel’s monetary policy is expected in the first half of the year.”