(Adds forecast, details, quotes from news conference)
JERUSALEM, April 6 The Bank of Israel on
Thursday held its benchmark interest rate at 0.1
percent, keeping the rate steady for more than two years, and
said it only expects to begin raising the rate in the second
quarter of 2018.
The path of inflation and the interest rate are lower than
those in the previous forecast mainly because of the shekel's
appreciation, Bank of Israel Governor Karnit Flug told a news
"Inflation is expected to enter the target range only in the
second half of 2018, and the first increase in the interest rate
is only expected in the second quarter of 2018," she said.
The central bank's research department lowered its economic
growth forecast for 2016 to 2.8 percent from 3.2 percent but
raised its 2018 outlook to 3.3 percent from 3.1 percent.
Israel's economy grew 4 percent in 2016.
The downward revision in 2017 was due to vehicle purchases
that were moved forward to 2016 due to tax changes that took
effect in January 2017.
Further changes in vehicle taxation are expected in January
2019, and the central bank estimates this will also lead to
purchases being brought forward, increasing the growth rate in
All 12 economists polled by Reuters had forecast no change
in the interest rate by the central bank.
The central bank's economists now expect inflation of 0.8
percent in 2017, down from a previous estimate of 1.0 percent
and below the government's annual target of 1-3 percent.
Inflation is expected to rise to 1.5 percent in 2018.
"The monetary committee intends to maintain the
accommodative policy as long as necessary in order to entrench
the inflation environment within the target range," Flug said.
Israel's annual inflation rate rose at a faster than
expected pace in February, its second straight gain after 28
months of falling prices.
The central bank also said there are signs of the housing
market cooling off, "but it is too early to conclude that the
trend of increases has halted".
(Reporting by Ari Rabinovitch and Tova Cohen)