Bank of Israel Holds Rate as Home Prices Rise, Growth Slows

  • All 17 economists in survey said rate to remain at 0.1 percent
  • Central bank is monitoring impact of Brexit vote on exports

The Bank of Israel left its benchmark interest rate near zero, as growth slowed, home prices rose and exporters braced for the impact of the U.K.’s vote to leave the European Union -- Israel’s largest trading partner.

The decision to hold the rate at 0.1 percent was forecast by all 17 economists in a Bloomberg survey. The central bank said last month it was closely monitoring developments surrounding the Brexit vote, amid fears it could crimp demand for exports that declined 12.9 percent in the first quarter, excluding diamonds and startups. The bank last changed the rate in February 2015.

“Uncertainty regarding the ramifications of the Brexit process is expected to remain high,” the Bank of Israel said in an e-mailed statement on Monday. The bank also noted the International Monetary Fund’s decision to lower its 2016 global growth forecast to 3.1 percent from 3.2 percent last week.

Israel’s economy grew 1.7 percent in the first quarter, down from 3.5 percent in the previous period, led by the drop in exports that account for about a third of output. While prices have fallen for 22 months on an annual basis, soaring housing costs have made it difficult for the central bank to consider a rate cut. The bank’s research department said it expects inflation to enter the target range of 1 percent to 3 percent within about a year.

“In view of the inflation environment, and of developments in growth in Israel and in the global economy, in the exchange rate, as well as in monetary policies of major central banks, monetary policy will remain accommodative for a considerable time,” the central bank said.

The Israeli shekel traded 0.2 percent lower at 3.8474 per dollar, while the country’s benchmark index of stocks was little changed at 4:19 p.m. in Tel Aviv. The yield on the government’s 6.25 percent bonds due October 2026 fell one basis point to 1.71 percent.

The shekel rose for eight days through Friday against a currency basket including the U.S. dollar and the euro, its longest streak since June 2014.

“This will likely drive the Bank of Israel to renew its intervention in the FX market,” David Reznik, head of fixed-income research at the capital markets division of Bank Leumi Le-Israel Ltd., Israel’s second-largest lender, said in an e-mailed note ahead of the central bank’s announcement.

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