​Some monetary accommodation removed

ISRAEL - In Brief 05 Jul 2021 by Jonathan Katz

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Some monetary accommodation removed The rate hold decision came as no surprise, as well as the unchanged forward guidance: “The Committee will therefore continue to conduct a very accommodative monetary policy for a prolonged time, using a range of tools as necessary, including the interest rate tool, in order to continue supporting the attainment of the policy targets and the recovery of the economy from the crisis, and to ensure the continued orderly functioning of the financial markets.” The general tone of the monetary announcement and the Governor’s remarks were upbeat in light of the opening up of the economy and rapid recovery, although he did stress the uncertainty of the Delta Variant and the still-depressed tourism sector. Some noteworthy remarks include: The Governor avoided being specific regarding further bond purchases (above the 85bn framework), stating that it will be assessed towards the end of the year according to the state of economic growth. Our interpretation: if the recovery continues with no serious renewed restrictions due to the Delta variant, this program will not be extended.He did announce that the program providing long-term loans (at negative interest rates) to the banking system against credit extended to small and micro businesses will end October 1st or when 40bn is implemented (34.2bn have been utilized by the end of May, and with a pace of 2.5-3bn per month, this should end by the end of August). This is a clear signal of a less accommodative monetary policy.The Governor thinks higher taxation on investors who invest in housing should be considered as a measure to cool the housing market. This underlines that policy rates are not a t...