Bank of Israel Governor Prof. Amir Yaron delivered the opening lecture of the Capital Market Club at Tel Aviv University’s Coller School of Management yesterday evening.  The lecture dealt with the Israeli economy’s transition from crisis to growth, and touched upon various issues that are relevant to accelerating the economy, increasing productivity, and developing the financial markets.


During his remarks, the Governor discussed inflation.  Leading up to the upcoming announcement of the October CPI, the Governor emphasized that:


“We assess that in the coming months inflation may be around the upper bound of the target range.  Our assessment is that annual inflation is expected to decline back to around the midpoint of the target range, once the supply chain interruptions that are currently limiting supply weaken.


“We see a number of encouraging signs of an easing in some of the difficulties in the global supply chain, and over time this process is expected to support a decline in goods and shipping prices.  In addition, I would also mention that in view of the strong activity in the labor market due to the gradual removal of COVID-19 restrictions, there has recently been increased certainty in the area of wages thanks to the ‘Package Deal’ that regulates future wage increases in large parts of the economy.  We are also looking at the development of inflation abroad, and we can see that inflation in Israel is in the lowest decile among the OECD countries.


“The current situation gives us more space within which to manage monetary policy, while we constantly examine developments in various areas, thereby continuing to support economic activity and the exit from the crisis. I would mention that the Bank of Israel Research Department’s staff forecast is that until the end of the third quarter of 2022, the Bank of Israel interest rate will stand at either 0.1 percent or 0.25 percent.  This forecast reflects a more measured interest rate path than in other countries, some of which have already begun monetary tightening after inflation significantly exceeded the target range.”


In discussing the exchange rate, the Governor noted that his remarks during the press conference at the Ministry of Finance a few days ago remain correct and reflect the Bank of Israel’s approach to the matter and the actions it chooses to take in the markets.  The Governor explained that, “In the long-term view, the Bank of Israel has created a process over the years that enabled the economy to gradually adjust and to transition from a production-oriented economy to a service-oriented economy while maintaining a high level of employment, which is a huge achievement.”


Looking forward, the Governor clarified that, “As we have already seen, the $30 billion benchmark is not an upper limit on the Bank’s 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 are not consistent with the fundamental conditions of the economy.”​