Bank of Israel Holds Key Rate Amid Virus Surge

(Bloomberg) -- The Bank of Israel held its benchmark interest rate at 0.1% to support Israel’s strong economic recovery amid a dramatic increase in Covid-19 cases. The recent increase in morbidity adds “a measure of uncertainty regarding economic activity in the short and medium terms,” and the monetary policy committee “will therefore continue to conduct a very accommodative monetary policy for a prolonged time,” the bank said in a statement accompanying its decision.  

All 10 economists surveyed by Bloomberg expected the base rate to remain unchanged. 

Key Insights

• Most of the recently published data reflect accelerated economic recovery prior to the significant worsening of morbidity “and there are still challenges to economic activity in view of the increased health risks in Israel and abroad,” the bank said.
• The virus outbreak is taking place in one of the world’s most vaccinated nations, and it’s not clear whether the surge has crested or will lead to a fourth lockdown, even as the government pursues an aggressive booster-shot program. Bank of Israel Governor Amir Yaron has warned that a monthlong lockdown could pare growth by half a percentage point, to 5%.
• The Bank of Israel didn’t mention its bond- and foreign-currency-buying programs, virus relief programs that are close to being fully tapped. Investors are waiting to see whether the programs will be extended.

Market Reaction

• Israel’s shekel was little changed to 3.2276 to the dollar after the decision.

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