Among other things, the Governor addressed the issue of inflation, and prior to the publication of the forthcoming index, he emphasized that:
“We estimate that inflation in the coming months will be in the vicinity of the upper limit of the target. We also estimate that annual inflation is expected to fall further, and return to the target center environment after the disruptions in supply chains that currently restrict supply have weakened.
We see some encouraging evidence of relief in some of the difficulties in global supply chains, and over time this process is expected to support declining commodity and transportation prices. In addition, I will also mention that against the background of activity in the labor market following the gradual removal of the corona restrictions, the certainty in the wage sector has recently increased thanks to the “package deal” that regulates wage increases in large parts of the economy looking ahead. We also look at the world in terms of inflation developments. In an international comparison, it can be seen that inflation in Israel is in the bottom decile among OECD countries.
The current situation allows us a space in the management of monetary policy while we continue to constantly examine developments in the various areas, thus continuing to support the continuation of economic activity in the economy and emerging from the crisis. I will mention that the research division’s forecast predicts that by the end of the third quarter of 2022, the Bank of Israel’s interest rate will be either 0.1% or 0.25%. “This is a forecast that reflects a more measured interest rate path compared to other countries in the world, some of which have already begun a monetary contraction after inflation significantly exceeds their targets.”
Referring to the issue of the exchange rate, the Governor noted that what he said at the press conference at the Ministry of Finance a few days ago is still true and reflects the Bank’s approach to the issue and the actions it chooses to take in the markets. The Governor explained that: “In the long run, the Bank of Israel has created a process over the years that has allowed the economy to adapt gradually and move from a production-oriented interface to an services-oriented economy while maintaining a high level of employment and that is a great achievement.”
And looking ahead, the governor clarified“As we have already shown, the $ 30 billion threshold is not a top barrier to intervention. We are constantly examining developments in the foreign exchange market and the Bank continues to conduct policy in accordance with the state of the economy and continued economic activity. We will not be indifferent to changes that do not match . “
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