Following the Fed, Bank of Israel to End Bond-Buying Program

(Bloomberg) -- The Bank of Israel will end “in the coming months” an 85-billion shekel ($26.3 billion) bond-purchasing program put in place to support the economy during the pandemic. Thursday’s announcement tightens Israel’s monetary policy at a time when inflation is rising and the economic and health pictures continue to improve.

The base rate remained unchanged at 0.1%, in line with the predictions of all 17 economists surveyed by Bloomberg. 

Key Insights

• Its research team raised the inflation forecast for the year to 2.5% from 1.7% in July
• The economic growth forecast for 2021 was revised up to 7% from 5.5% in July
• The Bank of Israel’s decision to end quantitative easing follows the lead of the U.S. Federal Reserve, which announced last month that it could begin tapering as early as November

Markets

• The shekel strengthened after the interest rate decision, and was trading up 0.2% against the dollar at 3.2311 at 4:12 p.m. in Tel Aviv

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• Minutes from Thursday’s monetary committee meeting will be released on Oct. 21
• Inflation has jumped in recent months, hitting an eight-year high of 2.2% year-on-year in August. The global supply chain shortage and surge in commodity prices has caused increases in the cost of imported goods such as cars and furniture
• The August inflation rate figure is above the midpoint of the government’s 1-3% inflation target range
• Israel’s GDP grew by a revised 16.6% in the second quarter as the country bounced back from a first-quarter coronavirus lockdown
• The unemployment rate has also been on the decline, falling to 8% in August

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