JERUSALEM (Reuters) – All six rate setters at the Bank of Israel voted to keep the benchmark interest rate at 0.1% on July 5, minutes of the discussions showed on Monday.
“They were of the view that the low level of the interest rate supports the continued recovery of economic activity,” the central bank said.
In keeping rates steady for a 10th straight decision, the bank had cited economic risks from the emerging Delta variant in the COVID-19 pandemic.
At the same time, the committee believes there is no concern of inflation heating up amid a spike in inflation in the United States. The annual inflation rate reached 1.7% in June, within an official 1-3% target range.
“While most assessments are that the high inflation
in the U.S. is not expected to persist, the committee was of the view that it remains difficult to determine how transitory the increase in Israel’s inflation is, but emphasized that inflation in Israel is much lower than in the U.S., and there is no concern of an outbreak of inflation,” the minutes said.
It noted that a rise in COVID-19 inoculation was driving the Israeli and global economies.
Growth in Israel is expected at 5.5% in 2021 although policymakers remain worried over employment, which remains lower than pre-crisis levels even as the number of job vacancies in some industries persist.
The broadest measure of unemployment showed the jobless rate falling to 9.0% in June from 9.8% in May.
“The recovery in the labour market is expected to continue, even if at a relatively moderate pace, and apparently a return to the unemployment rates of just before the crisis is expected to take a long time,” the minutes said.
Policymakers also expressed concern over rising housing costs but noted that fiscal uncertainty has decline and will decrease further after a state budget is passed this year.
They said that central bank foreign currency purchases in 2021 aimed at containing the strong shekel can exceed a planned $30 billion. Through June, the bank has bought some $25 billion of forex.
“Intervention this year is not limited to $30 billion, and at the end of the programme, the bank will intervene in the foreign exchange market at its discretion, given the state of the economy,” the central bank said.
The committee also unanimously voted to halt a programme by Oct. 1 to provide loans to banks against credit extended to small businesses.
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