In view of the strengthening of the shekel and the recommendations by foreign banks to buy shekels, Governor of the Bank of Israel Prof. Amit Yaron made it clear today that the Bank of Israel would not raise the interest rate in the near future.
In an unusual announcement, Yaron stated, "Since the interest rate decision, the inflationary environment has unexpectedly fallen off steeply with a 0.6% drop in the June Consumer Price Index. It is increasingly likely that the main central banks will resume expansionary measures, particularly important measures by the US Federal Reserve. This will have a strong effect on the exchange rates, which will in turn influence inflation. I believe there will be no interest rate hike for a prolonged period. Furthermore, additional tools are at our disposal, should they be needed."
"Globes" reported yesterday that foreign banks were interpreting the Bank of Israel's policy as aggressive, i.e. inclining towards an interest rate hike. The Bank of America wrote that Yaron was "focusing less than his predecessor on the effect of the strong shekel on the Israeli economy, and will therefore intervene less in the market in order to prevent strengthening of the shekel."
Among other things, the foreign banks relied on a protocol of the last interest rate decision by the Bank of Israel Monetary Committee showing that one committee member supported an interest rate hike, and the others also spoke about the possibility of raising the interest rate in the next Monetary Committee decision.
In today's announcement, Yaron stated, "At the time of the most recent interest rate decision on July 8, the committee believed that according to the information we had then, conditions might emerge for raising the interest rate in one of the upcoming decisions. We nevertheless emphasized that given the substantial uncertainty about a number of important variables, it could not be ruled out that it would be necessary to conduct an expansive monetary policy for a more prolonged period."
Published by Globes, Israel business news - en.globes.co.il - on July 31, 2019
© Copyright of Globes Publisher Itonut (1983) Ltd. 2019