Monetary program for May 2001 has been postponed

Monetary program for May 2001 has been postponed

24 April 2001

The Bank of Israel announces that as a result of sanctions imposed by the Workers’ Committee, and their cumulative effect over the last three months, it will not be possible to keep to the normal schedule, and so the decision regarding the interest rate for May which should have been announced on Monday 23 April has been postponed.

Decisions on changes in the Bank of Israel’s rate of interest are based on a broad information system covering three main areas: economic data from Israel and abroad; forecasts of expected developments of several variables; and assessments by the Bank’s economic departments of inflation compared with the targets in the next few years.

As a result of the Workers’ Committee sanctions, the following stages in the decision-making process have not taken place:

1. The daily discussions chaired by the head of the Monetary Department to make decisions about the daily monetary auction are not being held.

2. Discussions in the weekly Monetary Forum, headed by the Governor, are held on the basis of incomplete information, so that a complete assessment of the situation cannot be made.

3. Departmental discussions under the heads of the Monetary, Research, Foreign Exchange Control, and Foreign Currency Departments prior to the monthly interest-rate meetings have not been held. In these discussions the data are reviewed, and recommendations regarding the interest rate are formulated.

4. The monetary discussion with the above four departments, headed by the Governor, has not taken place. In this discussion economists of the Bank present data, forecasts, and assessments of the situation regarding (a) expected trends in the US, Europe, and Japan (interest rates, exchange rates, developments in financial markets and real economic activity) and their implications for Israel’s economy; (b) possible developments in capital flows from and to Israel, and their effects on the exchange rate; and (c) forecasts of changes in real activity, growth, and employment, and different scenarios regarding expected inflation based on econometric models of the Research Department and the Monetary Department.

5. As a result, the discussion in the narrow Monetary Forum headed by the Governor, in which the departments’ recommendations regarding the interest rate are presented and discussed, did not place either.

It should be emphasized that the monthly decision on the rate of interest is not one confined to the Governor alone, but is the culmination of a long and intensive process of formulating proposals regarding the interest rate. These proposals are based on a broad information base as outlined above and on discussions in which representatives of the appropriate professional departments in the Bank of Israel participate, and are made against the background of a combination of the weekly assessments of the situation during the month.

In addition to the above, the instructions of the Workers’ Committee have prevented the Bank of Israel from publishing data for the public, thereby harming the transparency of monetary policy.

The Bank of Israel notes that the sanctions of the Workers’ Committee have continued for three months, disrupting some of the Bank’s essential tasks. The management of the Bank explains that it is doing everything it can to minimize the disruption of the services which the Bank affords the public and to prevent damage which could result from the Workers’ Committee sanctions, although its ability to do so is limited. As is known, the Bank asked the Government to issue confinement orders to enable minimal performance of the services vital to the economy. This refers not only to the ability to manage the interest-rate policy, but also to the existence of a proper level of banking supervision, and the ability to make decisions required for the management of the country’s foreign-exchange reserves. All the above have been conducted in an irregular manner for the last three months, with the Bank’s management unable to fully carry out its responsibility.