By Steven Scheer
JERUSALEM (Reuters) – The Bank of Israel is expected to leave short-term interest rates unchanged this week for its 10th consecutive policy meeting, as the debate over inflation gains continues.
All 16 economists polled by Reuters believe that the monetary policy committee (MPC) will keep the benchmark rate at a record low of 0.1% when the decision is announced at 4pm (1300 GMT) on Monday.
With the rate expected to remain on hold for at least another year and some projections for 2023, analysts are waiting for the central bank to make decisions on extending purchases of government bonds and keep buying foreign currency to add to its record level of reserves in an attempt to contain the strong shekel.
In addition to the rate announcement, the Bank of Israel will simultaneously issue updates to its macroeconomic forecasts for 2021 and 2022 and Governor Amir Yaron will hold his quarterly press conference at 1315 GMT.
At the beginning of the COVID-19 pandemic, in response to rising bond yields, the central bank began a quantitative easing (QE) program in March 2020, saying it would buy up to 50 billion shekels ($ 15 billion) of government bonds. . In October, the level rose to 85 billion.
As of May, the bank has bought government bonds worth NIS 65.3 billion. At a rate of 3-4 billion shekels per month, it may have reached close to 70 billion in June (data to be released on July 7) and could reach 80 billion around September.
Leader Capital Markets chief economist Jonathan Katz believes Yaron will likely indicate that the program will not be renewed, a scenario that he says is embedded in the market.
Others see Yaron expanding the show.
Alex Zabezhinsky, chief economist at the Meitav brokerage, said it could expand by another NIS 15-30 billion, mainly due to weather.
The central bank, he said, will likely want to announce any decisions during one of its planned press conferences, which would be on Monday or October, when total bonds purchased will be near the threshold and on short notice.
“If you want … to be able to explain your decision at a press conference, the Bank of Israel may already announce this week the continuation or termination of the program.”
Similarly, the Bank of Israel bought $ 22 billion in foreign exchange during the first five months of 2021 as part of the $ 30 billion planned this year to contain the strength of the shekel. Yaron has said that purchases could exceed $ 30 billion if necessary.
Israel’s inflation rate jumped to 1.5% in May, close to the midpoint of the government’s 1-3% annual target range, from 0.8% in April, but policy makers have said it was difficult to determine. if the increase in inflation is temporary.
In April, the central bank forecast economic growth of 6.3% this year after widespread COVID vaccination among adults. Infection rates have started to rise as the Delta variant takes hold.
($ 1 = 3.2674 shekels)
Fusion Media or anyone involved with Fusion Media will not accept any responsibility for loss or damage as a result of reliance on information, including data, quotes, charts, and buy / sell signals contained on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.