The Bank of Israel is raising the basic interest rate from 0.1% to 0.35%, the bank announced Monday.
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Bank of Israel Governor Professor Amir Yaron said Monday at a press briefing that "We continue to see a robust Israeli economy, which has nearly completely erased the effects of the [COVID] pandemic. The output gap has essentially closed, and the labor market has also nearly completely recovered, with a high employment rate alongside solid demand for employees. The strong growth is particularly notable compared to other advanced economies. These are results that characterize a dynamic economy, with the ability to adjust to various economic situations and challenges."
"As part of the global recovery from the crisis, demand for products has been strong, but it is hard for supply to respond to this increased demand due to difficulties in renewing production activity worldwide … Among some parts of the population there has been an increase in disposable income, and with it an increase in demand with the removal of the limitations to deal with the pandemic … This reality led to inflation in many countries exceeding the target and it led central banks to start tightening monetary policy. Similarly, in Israel, inflation has recently exceeded the target range, though inflation in Israel was and still is markedly lower than the inflation rate in most OECD countries," Yaron said.
Yaron also touched on the implications of the Russo-Ukraine war on the global economy: "The war is liable to lead to a slowing in the global recovery process and mainly to weigh on the loosening of global production and supply limitations. These developments impact prices worldwide and particularly on energy prices, and due to that, contribute to increased inflationary pressures."
Also Monday, the BOI announced it had revised its forecasts for 2011, saying it projected GDP growth of 5.5% in 2022, and 4% in 2023. The BOI said it expected adjusted employment to continue increasing slightly and reach 61% at the end of 2023.
The BOI expects the inflation rate for 2022 to stand at 3.6%, and drop to 2% in 2023. In addition, the BOI projects a debt-t- GDP ratio of 67% in 2022 and 65% in 2023.
It is possible that the bank's Monetary Committee will decide to raise the basic interest rate by a quarter of a percent each time it meets. If this comes to pass, Israel's basic interest rate will reach 1.75% by the end of 2022. The next interest rate announcement is scheduled for May 23, 2022.
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