Bank of Israel Holds Rates as Inflation Lags Global Surge

(Bloomberg) -- The Bank of Israel signaled on Monday that it remains unperturbed by Israel's inflation outlook, keeping its benchmark interest rate unchanged and predicting that borrowing costs will remain steady well into 2022.

The rate was held at 0.1%, in line with the expectations of all 11 economists surveyed by Bloomberg.

Key Insights

The bank's research department predicted that inflation, which rose to 2.4% in November, would reach 2.4% in 2021, and 1.6% this year. The government has set a target range for inflation of 1% to 3%.
The central bank forecast Israel's base interest rate at between 0.1% and 0.25% one year from now. With the expected rise in U.S. rates this year, a widening spread with borrowing costs in Israel could weaken the shekel, which was the best-performing major currency against the dollar last year.
The economy is expected to expand 5.5% this year, but the central bank cautioned that that projection will depend on how severely the omicron variant disrupts the economy. Prime Minister Naftali Bennett has predicted that the daily caseload could spike from more than 6,500 on Sunday to 50,000.
Bank of Israel Governor Amir Yaron said in a speech after the announcement that Israel's economy “has learned to function alongside the virus, to adjust to it, and to successfully conduct economic activity even when facing the threat of infection and the risks.”