Israel Bank governor

For the 15th month in a row, the Bank of Israel has left the basic interest rate in the economy at 0.1% per year. Thus the prime interest rate will remain at 1.6% per annum. The Monetary Committee of the Bank of Israel has not yet changed its policy of leaving the interest rate at the all-time low, despite the rise in inflation since the beginning of the year. In addition, according to the Bank's forecast, the monetary interest rate is expected to stand at 0.1% in the coming year as well. This is despite previous estimates on the subject, according to which it is claimed that if the price increases in the economy continue, which amount to 1.5% in the first five months of the year, the interest rate in Israel will rise towards the end of 2021 or early 2022, to 0.25%.
For now, the low interest rate in the economy is both beneficial and harmful: its low rate helps the business sector as well as employees and the unemployed to take out particularly low loans on the one hand. On the other hand, the low interest rate - especially the prime interest rate allowed to use up to two-thirds of the mortgage amount - increases the demand for apartments, and is one of the reasons for the relatively large rise in apartment prices in recent months.
According to the forecast published by the central bank, despite the increase in morbidity due to the Delta strain, no significant closures or restrictions on activity due to the corona will be required. The Bank estimates that the economy is continuing the recovery process from the crisis and that by the end of 2022, activity will approach the trend line from the pre-crisis period.
However, the Bank did lower its GDP growth forecast to 5.5% in 2021 and slightly raised its forecast for 2022 to 6%. The broad unemployment rate will fall throughout the forecast period, reaching 5.5% at the end of 2022. The inflation rate in the next four quarters (ending in the second quarter of 2022) is expected to be 1% and in 2022 it is expected to be 1.2%, similar to the Bank's previous estimate.
The Bank estimates that the state budget will be approved by the end of the year and that fiscal consolidation will be postponed to 2023. Under these assumptions, the Bank estimates that the government deficit in 2021 is expected to be 7.1% of GDP, and in 2022 at 3.8% of GDP. The debt-to-GDP ratio is expected to amount to approximately 74% in each of these years.
Regarding the foreign exchange market, the governor said that “the announcement of the $ 30 billion purchase plan we published in January this year, in the midst of the crisis, was a special plan for a very special situation, which supported the economy dealing with the economic consequences of the corona crisis.
"Since January, the morbidity situation in the world in general and in Israel in particular has improved, the economy is recovering at a good pace, employment is improving and inflation has returned to the target range. As I said on previous occasions, "Foreign currency as needed, taking into account the economic activity of the economy."