Governor of the Bank of Israel has told "Bloomberg" that there is unlikely to be an interest rate cut, quantitative expansion or bond buying program. She said that unconventional tools like these would only be used in unusual circumstances. Flug added that the shekel is "too strong," apparently hinting about Bank of Israel intervention in the foreign currency trading market.
Three days after the Monetary Committee that she heads kept the interest rate for November unchanged at 0.1% for the eighth consecutive month, Flug said that the interest rate is already "very accommodative" and that cutting the rate further (to zero or even negative interest rate) would be considered unconventional monetary policy. The Bank of Israel has lowered the interest rate 13 times since 2011 in efforts to weaken the shekel and encourage exports.
She said, "Further changes in the rate would imply moving toward the unconventional kind of monetary policy, and that would be based on an assessment that we are in unusual circumstances. We leave the door open for that, but if our basic scenario materializes, I think the current monetary policy stance is appropriate.”
She added that low interest rate would be needed "for a while" and when asked if the Bank of Israel would launch a quantitative easing program, she said, she doesn't rule out anything but only in "exceptional circumstances."
Flug did not elaborate on what would be "unusual circumstances" that would convince the Bank of Israel to cut interest and buy bonds but said that an escalation in the latest wave of terror would hit Israeli consumption and tourism, and would be a negative development.
“If the violence wave becomes more intense or is prolonged, that can have a pronounced effect on consumption and tourism, so there is a risk,” she told "Bloomberg."
Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2015
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