Israel’s central bank should be prepared to raise interest rates and reduce foreign exchange interventions if inflationary pressures intensify further, the International Monetary Fund said on Sunday, according to Reuters.
In a statement after its annual visit, the IMF said there was room for the Israeli government to raise taxes, while advising more efficiency in government spending.
Israel’s inflation rate was 2.8% in 2021, within the official 1-3% target and well below the rates seen in many of its Western counterparts, but the IMF said rising service prices, its high rate capacity and wage growth in some sectors “show signs of underlying inflationary pressures”.
“If the underlying upward pressures become more apparent, the Bank of Israel should be prepared to tighten monetary policy,” the IMF said.
Iva Krasteva Petrova, head of the IMF mission to Israel, told reporters that as long as inflation is within target there is no need for monetary tightening now, but that the central bank should remain vigilant. She also expressed concern about high housing prices.
At the same time, the IMF said that “foreign exchange markets should be reduced, allowing the shekel to be determined by market forces, without excluding future markets in the event that appreciation pressures threaten to push inflation or inflation expectations down.” from the target “.
The central bank has said it is not worried about a spike in inflation and that this allows it to be patient in pursuing monetary policy.
The IMF praised the government’s management of the COVID-19 pandemic and its goal of reducing Israel’s debt in the medium term.
He warned, however, that the planned reshuffle was based on cost-cutting cuts that could prove challenging, given the already low public spending. “Carrying out a review of the effectiveness of public spending would be useful,” he said.
The government has room to increase tax revenues, the IMF said, adding: “The tax system could become more progressive and the tax base could be expanded, including by reducing tax breaks for pensions and individual and corporate taxation. incentives for selected groups “.
After growing 6.5% in 2021, the IMF expects stable economic growth in Israel in 2022, which will be supported by consumer spending, investment and exports.
He said the new variants of COVID could pose a threat to economic growth, while tightening global financial conditions could shake stock markets, reduce government revenue and increase capital costs.
Source: Capital
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