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May 21, 2020 10:12 am

Bank of Israel to Hold Key Interest Rate After April Cut: Reuters Poll

avatar by Reuters and Algemeiner Staff

An Israeli flag flutters outside the Bank of Israel building in Jerusalem, Aug. 7, 2013. Photo: Reuters / Ronen Zvulun / File.

The Bank of Israel is expected to leave short-term interest rates unchanged next week after a reduction last month aimed at helping the economy recover from the coronavirus pandemic.

All 12 economists polled by Reuters believe the monetary policy committee (MPC) will keep its benchmark rate at 0.1 percent when the decision is announced on Monday at 4 p.m. (1300 GMT).

On April 6, the MPC lowered the rate from 0.25 percent for its first cut in five years, while also signaling a willingness to move to negative rates if the economy deteriorates much further.

Economists, though, believe the central bank will opt to keep rates positive for now, especially with the economy opening faster than expected six weeks ago.

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“Negative rates will do more harm than good,” said Ofer Klein, head of economics and research at Harel Insurance and Finance.

Instead, analysts believe, the central bank will stick to other policies such as foreign-exchange market intervention.

Israel’s economy struggled under government restrictions that required most Israelis to stay at home, with the number of job seekers peaking above 1 million. Nearly 150,000 have returned to work and next week restaurants are slated to re-open, joining schools and shopping malls.

Of the 16,665 Israelis infected with the virus, most with mild symptoms, just 2,812 remain sick while 279 have died.

Israel’s government has proposed a 100 billion-shekel ($28 billion) aid package to help the economy. Bank of Israel Governor Amir Yaron has supported the action, saying now is not the time to tighten spending.

For all of 2020, the central bank forecasts an economic contraction of 5.3 percent, rebounding to grow 8.7 percent next year. Its own economists project the interest rate will between 0 percent and 0.1 percent in 2020 and fall to 0-0.25 percent in 2021.

Israel’s annual inflation rate fell to -0.6 percent in April from 0 percent in March, well below an official 1-3 percent target.

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