Bank of Israel optimistic that Omicron won't harm economic growth

Israel 17 January 2022 17:49 (UTC +04:00)
Bank of Israel optimistic that Omicron won't harm economic growth

Israel's central bank voiced cautious optimism that the Omicron wave sweeping the country would have no significant impact on economic growth despite spiking infections, minutes of the Bank of Israel's meeting earlier this month show, Trend reports with reference to Reuters.

All six rate setters voted at their Jan. 3 meeting to leave the benchmark interest rate at 0.1%, saying that the low level of the interest rate supports the continued recovery of economic activity.

"However, there are still challenges to economic activity," the minutes read. "Therefore, the committee decided to continue to conduct accommodative monetary policy for a prolonged time, in accordance with the pace of growth and employment and in the path of inflation."

Policymakers discussed the spread of the Omicron variant of the coronavirus, with infections jumping to above 30,000 a day - reaching 253,103 active cases, though only 446 of them serious - and surmised that the fifth wave of the pandemic would not be as harsh as the prior four, the minutes indicated.

"Even if additional limitations are not imposed in Israel, there could be a slowdown in economic activity due to the sharp increase in the number of confirmed cases and people in isolation," the minutes said.

"With that, (however), their assessment was that compared to previous waves, the economy has learned to adjust and to continue carrying out activity alongside the coronavirus - which is expected to assist the economy in dealing with the current wave of infection."

Last week, Bank of Israel Governor Amir Yaron said the Omicron variant would cost the economy around two billion shekels ($644 million) every 20 days.

"At this point we are not talking about a macro-economic development," Yaron told parliament's finance committee. The economic hit would come from reduced consumption and workers sick or stuck in isolation, he said. "Most estimates are of a relatively short wave - a number of weeks."

Israel's economy was estimated to have grown 6.5% last year and is projected to grow 5.5% in 2022. Inflation in 2021 reached an eight-year high of 2.8%, though staying within the government's 1-3% target. As such, the central bank's staff foresees no more than a 15 basis point rate increase this year.

"The committee continued to assess that in this stage there is no concern (about) an outbreak of inflation," the minutes said. "In 2022 the inflation rate is expected to moderate...The current situation allows it more patience in conducting monetary policy while continuing to examine and analyse all the developments."