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By Steven Scheer
JERUSALEM Feb 27 Israel's central bank kept its
benchmark interest rate unchanged at 0.1 percent for a 24th
straight month on Monday, effectively dismissing a huge boost in
economic growth as an anomaly.
It said extraordinary factors had boosted economic growth at
the end of 2016 - a far larger-than-expected annualised rate of
6.2 percent in the fourth quarter.
The jump was based on an "atypical increase" in sales of
vehicles reflecting purchases being brought forward in advance
of a revision of taxes at the start of 2017.
"Net of this increase, it may be assessed that the growth
rate was slightly above 3 percent ... only slightly higher than
the basic growth rate of previous years," the Bank of Israel
For all of 2016, Israel's economy grew 4 percent and is
projected to grow 3.2 to 3.5 percent in 2017.
At the same time, a trend of falling prices ended after 28
months when the annual inflation rate rose 0.1 percent in
January from a fall of 0.2 percent in December.
The central bank played this down too. The increase stemmed
from a change in the trend of energy prices and a dissipation of
government mandated price reductions, it said.
It expects inflation will reach 1 percent - the bottom of
the government's 1-3 percent annual target - in late 2017.
"The Monetary (Policy) Committee is of the opinion that the
risks to achieving the inflation target remain high, yet the
increases in wages and in global inflation are expected to
support the return of inflation to the target," the Bank of
All 10 economists polled by Reuters had forecast no change
by the central bank, which is widely expected to keep rates
unchanged until at least late 2017.
The next decision is slated for April 6. The bank will only
decide on rates 8 times a year starting in 2017, down from 12
A report from the central bank last week showed that
policymakers were no longer considering further rate reductions
that would bring rates below zero or using unconventional
monetary tools like bond purchases given a rebound in economic
growth and higher inflation.
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
One policy member, however, believes that the pace of hikes
will probably be faster, according to minutes of recent
Rather than reduce rates, which would be hard, the central
bank said it focuses on buying dollars. That weakens the
currency, building inflation and boosting exports.
The shekel, however, stands at a two-year high
against the dollar at a rate of 3.66 and is also at a 15-year
peak against the euro.
Since the last rates decision a month ago, the shekel has
gained 3 percent against the dollar. The central bank said the
strong shekel continues to weigh on goods exports, even as
exports improved in 2016.
The bank also noted that while there as been a sharp
decrease in home prices of late, it was too early to assess if
the trend in home costs was changing.
(Reporting by Steven Scheer; Editing by Ari Rabinovitch/Jeremy