(Adds details, comments)
By Steven Scheer
JERUSALEM Feb 22 Israeli policymakers have
stopped considering a possible move to negative interest rates
or using other unconventional monetary tools given a rebound in
economic growth and higher inflation, the Bank of Israel said on
The central bank's monetary policy committee (MPC) has kept
its benchmark interest rate unchanged at 0.1 percent
for two years, although it has said policy would remain
accommodative for a considerable time.
"It is no longer needed to examine the use of various
monetary tools," its report for the second half of 2016 said.
The MPC "believes that conditions have not come about
requiring the use of unconventional tools such as bond purchases
or negative monetary interest, in view of the unexpectedly
strong growth data, strength of the labour market, increase in
medium-term inflation expectations, and long-term expectations
that remained in the middle of the (1-3 percent) target range."
The bank next decides on interest rates on Monday.
Its own economists forecast steady policy through the third
quarter of 2017 and a 15-basis-point rise in the fourth quarter,
followed by another quarter-point increase to 0.5 percent in
Rather than reduce interest rates, the MPC opted to buy $2.6
billion of foreign currency in the second half of 2016, $900
million of which was bought under a programme that aims to
offset the impact of natural gas production on the exchange
"The (MPC) preferred to make use of foreign exchange market
intervention, rather than a further reduction in the interest
rate, because of the risks inherent in a negative interest rate
policy," the central bank said, reiterating that the strong
shekel continues to weigh on exports.
Israel's economy grew 4 percent in 2016 but is projected to
slow to 3.2 percent this year.
The annual inflation rate turned positive in January -
rising 0.1 percent - after 28 months of falling prices. The
central bank foresees a 1-percent inflation rate by the end of
The shekel is at a more than two-year high against
the dollar at 3.71, and at a 15-year peak versus the euro.
"Various equilibrium exchange-rate models indicate that the
shekel is overvalued," the central bank said.
(Editing by Tova Cohen and Louise Ireland)