Remarks by the Bank of Israel Governor at the Knesset Finance Committee

Bank of Israel Governor Prof. Amir Yaron presented a periodic review of the state of the economy today to the Knesset Finance Committee.  The Governor began his remarks by discussing the state of the Israeli economy prior to the COVID-19 crisis, and related to the low debt to GDP ratio, the GDP growth rate, the low unemployment, and the current account surplus.  The Governor also presented the main measures adopted by the Bank of Israel during the crisis, divided into three categories: monetary policy and financial stability; banking, credit and payments; and economic advice to the government.  During the presentation, the Governor discussed the international comparison of the adverse impact to GDP in the second and third quarters of 2020, and showed that the impact to Israel’s economy was comparatively slight.  The Governor emphasized that the Israeli economy is strong, and detailed the macroeconomic assessment for 2020 and 2021 according to the scenario in which morbidity is controlled, and the scenario in which there is less control over morbidity, in which case the expected impact on the economy will be more severe.  He also presented the IMF’s forecast, according to which GDP will contract in a way similar to the average of the OECD countries in 2020, but will grow rapidly thereafter.


The Governor emphasized the importance of opening businesses and the economy, while stringently adhering to the guidelines such that morbidity levels will not rise.  He reviewed the situation of the labor market, and noted that removing restrictions will immediately increase the level of economic activity, and will lead to improved unemployment data.  Among other things, he noted that the COVID-19 crisis has caused great harm to young people and the elderly, and that professional retraining courses must be arranged to avoid the loss of many work years.  The Governor emphasized that the unpaid-leave model used at the start of the crisis was appropriate at the time, and that the model must now be made more flexible in order to allow for a return to the labor market through various paths.


In conclusion, the Governor discussed the tremendous uncertainty that is characteristic of the crisis, and the increase in the economic risk level.  The Bank of Israel is making broad use of the tools at its disposal, some of which in an unprecedentedly large manner, in order to minimize the damage to households and small businesses and to help them get through the situation.  As part of this, the Bank of Israel is constantly examining additional measures, while examining and learning from the measures adopted by other central banks.  In our view, the measures must be adopted intelligently, with an emphasis on maintaining the stability of the banking corporations where the public’s money is deposited.​