Bank of Israel maintains stimulus despite rapid vaccination

GDP shrank by 2.4% in 2020, less than previously forecast
David Vaaknin

The Bank of Israel kept its monetary policy stimulus unchanged after its policy meeting today (February 22).

As a result, interest rates remain at 0.1%. The central bank’s monetary committee warned the economy was still facing risks, despite the high rate of vaccination.

“The fast pace of the inoculation process in Israel increases the optimism regarding a rapid return of the economy to a path of growth in the coming year. However, the risks to economic activity remain high,” says the policy statement. Rate-setters stress the impact on the labour market is expected to be prolonged.

According to Our World in Data, by February 21, Israel had administered 85 vaccination doses per 100 people, well ahead of the UK (with around 26 doses) and the European Union (with six).

Inflation remains below the 1–3% target, but continues to gradually increase. In January, the consumer price index was down 0.1% year on year, unchanged from December. Inflation in 2020 was -0.4%.

The BoI confirmed the economy performed better in 2020 than previously thought. GDP contracted by 2.4% over the year, and GDP per capita by 4.1%. But, in spite of a second lockdown in October, and the start of a third one in late December, the economy expanded by 6.3% in the fourth quarter.

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