Bank of Israel Holds Rate, Cites Uncertainty After U.S. Voteby
Central bank holds rates, as predicted by 15 economists
Bank of Israel on hold as economy shows signs of improvement
The Bank of Israel held its benchmark rate at a record low, citing accelerated inflation and a “positive” economic picture.
It reiterated its guidance that monetary policy will remain accommodative for a “considerable time,” even as markets expect a U.S. rate rise next month.
The decision to keep borrowing costs at 0.1 percent for a 22nd month was predicted by all 15 economists surveyed by Bloomberg. Earlier this month, the Central Bureau of Statistics reported that gross domestic product expanded 3.2 percent in the third quarter, boosted by business investment and imports. The shekel maintained gains after the rate decision.
The Bank of Israel has kept borrowing costs low for fear of contributing to the shekel’s strength. Some economists say the bank would like to see a significant rate gap build with the U.S. before it lifts its own rate to avoid further shekel gains. Negative inflation for 26 months has also kept borrowing costs down, though the bank noted in its statement that an increase in the annual inflation rate “has been apparent for several months.”
A Bloomberg survey shows no analysts see a rate increase this year. The Bank of Israel’s research staff expects the next rise in late 2017.
The central bank cut interest rates to a record low last year to boost growth and weaken the shekel, which is trading near an all-time high against a basket of currencies, crimping exporters’ profits. Exports, hampered by the strong currency and sluggish global trade, are still in decline, shrinking 4.7 percent in the third quarter.
In its first decision since the U.S. election, the central bank noted that “there is considerable uncertainty regarding the changes that will occur in U.S. economic policy in the medium term and their effect on Israel’s economy.” Political developments in some advanced economies “could weigh further on the growth of trade,” it added.
Israel’s technology-powered economy relies on exports for about one-third of gross domestic product.