Here is a breakdown of the reasons given:
The fourth wave of the COVID-19 virus in Israel is abating. The economy’s handling of this morbidity wave did not include serious restrictions on activity. However, there is still a great extent of uncertainty regarding economic activity in the medium term, mainly in view of the risk of cyclicality of additional morbidity waves.
The available indicators of economic activity show that even at the peak of morbidity during the fourth wave, there was no significant decline in activity or in demand.
The Research Department revised its staff forecast upward. Its assessment is that GDP will grow by 7 percent in 2021, and by 5.5 percent in 2022.
Labor Force Survey data for the first half of September indicate stability in the unemployment rate. The number of job vacancies continued to increase, further to the trend since the beginning of the year, and the shortage of workers continues to weigh on the expansion of activity.
The upward trend in inflation continues. Inflation in the past 12 months is 2.2 percent. One-year inflation expectations from all sources increased, and are within the target range. According to the various forecasts, the pace of inflation is expected to moderate later on.
Since the previous interest rate decision, the shekel weakened by 0.5 percent against the dollar. The shekel strengthened by 1.1 percent against the euro, and by 0.3 percent in terms of the nominal effective exchange rate.
Home prices increased by about 8 percent in the past 12 months, a more rapid pace than in previous years. The pace of increase in rental prices remained relatively moderate. There is a prolonged marked decline in building completions.
The global economy continues to recover in view of the moderating morbidity rates and the increase in vaccination rates. However, it seems that momentum has weakened due to difficulties in the global production chain and the increase in energy prices that are increasing existing inflation risks. Some of the central banks have started to gradually reduce their monetary accommodation.
The inflation rate is expected to be 2.5 percent in 2021, but looking at the next four quarters, inflation is expected to gradually moderate to 1.7 percent. In addition, assuming that the State budget is passed as planned and that the fiscal adjustment will be pushed off to 2023 and onward, the debt to GDP ratio is expected to be 73.5 percent in 2021 and 73 percent in 2022.
The upward trend in inflation continues. The CPI reading for August was up by 0.3 percent, and inflation in the past 12 months is 2.2 percent. The upward trend in one-year inflation expectations from all sources also continues, but expectations are within the target range. However, there is a marked gap between expectations derived from the capital market and those of the professional forecasters and the banks, which are lower. Medium-range expectations increased, and long-term expectations remained anchored at the midpoint of the target range. The Monetary Committee is closely monitoring these developments, and maintains its assessment that there is no concern of an inflationary outbreak.
Since the previous interest rate decision, the shekel weakened by 0.5 percent against the US dollar, while it strengthened by 1.1 percent against the euro, and by 0.3 percent in terms of the nominal effective exchange rate.