Likely change in the inflation target

ISRAEL - In Brief 12 Jul 2021 by Jonathan Katz
Governor Yaron spoke today at a conference on July 12 regarding inflation targeting. The idea to revise the inflation target came up actually before Covid, probably one year before. This was due to several years of undershooting the target, which I think the BoI is uncomfortable about on a credibility level. The current target is 1% to 3% and inflation has been running way below that for many years:2014: -0.2%2015: -1.0%2016: -0.2%2017: 0.4%2018: 0.8%2019: 0.6%2020: -0.7% So this is the background for this inflation conference and move to revise the target. My own assessment is that they move towards the ECB target: 2% symmetrical target over the medium term, instead 1%-3%. This allows for a more expansionary monetary policy on paper. A former BoI Governor used to say that 1% inflation is as good as 2% (no need for lower rates). If the target is changed to 2% monetary policy has to strive to reach that target. This will be a more dovish policy in general. I think they will announce a change in the inflation target by early 2022, but no word on timing from the BoI as of yet.

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