Bank of Israel to hold key interest rate at 0.1 percent for 26th month: poll

Economy
© Reuters. FILE PHOTO: An Israeli flag flutters outside the Bank of Israel building in Jerusalem© Reuters. FILE PHOTO: An Israeli flag flutters outside the Bank of Israel building in Jerusalem

By Steven Scheer

JERUSALEM (Reuters) – Israel's central bank is expected to leave short-term interest rates unchanged for a 26th straight month on Monday, as the economy softened in the first quarter while inflation eased last month.

All 10 economists polled by Reuters forecast the Bank of Israel would hold its benchmark rate at 0.1 percent at 4 p.m. (1300 GMT). Last month, all four rate setters voted to hold rates.=ECI>

In a preliminary estimate, Israel's economy grew an annualized 1.4 percent in the first quarter, its slowest pace in almost two years and well below a Reuters consensus of 3.7 percent growth. The numbers, including a 4.7 percent spurt in the prior three months, were viewed as a distortion due to changes to the way cars are taxed at the start of 2017.

Growth was 4 percent in 2016 but is expected to slow to around a 3 percent pace in 2017.

Similarly, the annual inflation rate slipped to 0.7 percent in April from 0.9 percent in March to remain below the government's annual target of 1-3 percent.

“The decline in growth does not reflect a significant decline in domestic activity, but rather growth 'normalizing' from an exceptionally high base last year,” said Goldman Sachs (NYSE:) economist Sara Grut.

Still, she said that given the lower inflation and lower growth, together with the central bank's “dovish forward guidance” to maintain the accommodative policy as long as necessary in order to entrench the inflation environment within the target, “we find it unlikely that the Bank of Israel will tighten policy over the next year”.

The central bank's own economists expect the next move to be a hike, coming in the second quarter of 2018.

One annoyance for the central bank has been the strength of the shekel , which stands at a 28-month peak against the dollar at a 3.57 rate. The shekel is also at an all-time high against a basket of currencies of Israel's main trading partners such as the dollar, euro, yen and pound.=>

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