(Adds central bank governor comments, updated growth estimates,
By Steven Scheer and Ari Rabinovitch
JERUSALEM Dec 26 The Bank of Israel raised its
forecasts for economic growth on Monday, after holding its
benchmark interest rate steady at 0.1 percent for
the 22nd month in a row.
All 10 economists polled by Reuters had forecast no change
by the central bank, which is expected to keep rates steady
until late in 2017.
"The economy continues to grow at a solid pace and the
labour market is strong, while the inflation environment remains
very low," Bank of Israel Governor Karnit Flug told a news
Israel has been mired in deflation for more than two years,
with the annual rate of price moves holding steady at -0.3
percent in November despite the dissipation of energy price
In updated estimates, the bank said it expected annual
inflation to reach 1 percent late next year, moving back to
within the government's annual target range of 1-3 percent. It
sees a 1.5 percent inflation rate in 2018.
The central bank raised its economic growth estimate to 3.5
percent in 2016 from 2.8 percent previously, citing upward
revisions to growth in the first half and higher than expected
third-quarter growth of an annualised 3.2 percent.
It raised its forecast for growth next year 2017 to 3.2
percent from 3.1 percent and predicted a 3.1 percent expansion
for 2018, with the economy expected to be more reliant on
exports the next two years and less on consumer spending.
The bank's own economists predict policymakers will leave
the benchmark interest rate at 0.1 percent until the third
quarter of 2017 and then raise it to 0.25 percent by the end of
next year and to 0.5 percent in 2018.
Flug noted that the bank would not necessarily follow
interest rate increases by the U.S. Federal Reserve, especially
since the European Central Bank is expected to stick to very
The central bank's "policy of foreign exchange purchases
will continue, as necessary, to support the attainment of policy
goals," Flug said.
The bank's reserves have reached more than $97 billion and
are moving towards the upper end of its $70-$110 billion target
range. Flug noted that the bank would hold back on buying
foreign currency should reserves hit $110 billion.
Israel's shekel was steady at 3.815 per dollar after
the rate announcement. It has gained 1.3 percent since the last
rates decision, while appreciating by 2 percent versus a basket
of currencies of major trading partners.
Over the past 12 months, the shekel has appreciated 5.6
percent against the currency basket.
Starting in 2017, the central bank will decide on interest
rates eight times a year from the current 12.
(Editing by Hugh Lawson)