The Bank of Israel hasn’t exhausted its monetary policy ammunition even though the benchmark interest rate is already close to zero, a monetary policy committee member said Tuesday.
“Interest rates can go down, they can go into negative territory, we saw that in many countries in Europe,” Nathan Sussman, the central bank’s research director, said in an Israel Radio interview. “The zero boundary in interest rates has been broken by more than a few central banks, so this option is certainly open.”
The monetary policy committee decided not to cut the rate on Monday because “the state of the Israeli economy doesn’t require a rate cut,” Sussman said. While growth has moderated from last year, it is still “good” and employment is at a high level, he said.
The policy committee, led by Governor Karnit Flug, held the rate at 0.1 percent, while warning that risks to growth and the inflation target have increased. In June, the bank forecast growth at 3 percent in 2015 and 3.7 percent in 2016.
Inflation expectations derived from a Bank of Israel survey of economists declined to 0.7 percent this month, below the government’s 1 percent to 3 percent annual target range.
The shekel weakened by 0.4 percent Tuesday against the dollar at 4:35 p.m. in Tel Aviv, after strengthening by 0.9 percent on Monday.
Aside from negative interest rates, “there are lots more tools” in central bank toolkits, Sussman said, citing foreign currency purchases as an example.
The central bank noted in its rate decision that “the Monetary Committee is of the opinion that the risks to attaining the inflation target, and to growth, have increased.”
Sussman said the committee wanted to make it clear that it isn’t “complacent.”
“If we need to, we will act,” he said.