Policy rates reduced to 0.1%, with further loosening possible

ISRAEL - In Brief 06 Apr 2020 by Jonathan Katz
The MPC decided to reduce rates to 0.1%, and in addition to provide 3 year loans to the banks at 0.1% interest, contingent on providing loans to small and medium sized businesses. In addition, the BoI will allow corporate bonds (in addition to government bonds) as collateral in the repo market. There is a hint towards lower rates in the following statement: The Committee will expand the use of the existing tools, including the interest rate tool, and will be able to operate additional ones, to the extent that the crisis lengthens. The research dept expected GDP growth to decline by 5.3% this year but increase by 8.7% in 2021. Inflation is expected to reach -0.8% this year and 0.9% next year. This forecast includes a rate forecast of 0.0% to -0.1% by end 2020 and 0.0% to 0.25% by the end of 2021. The negative growth forecast in 2020 is made up of a 5.0% decline in private consumption, a 11% decline in investments and a 15% decline in exports. Public consumption will increase by 5%. Unemployment (ages 25-64) will average 6% for all of 2021. In the press conference, Governor Yaron hinted that lower rates are conditional on further deterioration of economy activity, beyond what is in their base case scenario.

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