September 1, 2019 / 4:50 PM / 21 days ago

UPDATE 1-Israel central bank chief vows to use all tools to prevent slowdown

(Adds details, quotes)

By Steven Scheer

TEL AVIV, Sept 1 (Reuters) - Bank of Israel Governor Amir Yaron said on Sunday the central bank will use all its available tools to prevent an economic slowdown and push inflation higher.

Yaron said the central bank would continue with expansionary policies since the inflation trend has changed - moving to an annual rate of 0.5% in July from a peak of 1.5% in May.

Yaron and policymakers have changed their tone since July, when they were still holding onto the prospect of a possible rate hike this year while markets had factored out any hikes well into 2020.

“It is unclear at this stage if it is data noise ... or a basic drop in inflation,” he said at a conference. “But it is clear to us that we must continue to strive and raise inflation toward the centre of the (1-3%) target.”

Yaron noted that risks to the economy had increased and, if the risks were realised, “we will want to act in a timely manner to prevent any slowdown in economic activity”.

“How will we do this? We have a variety of tools, and all of them are on the table,” he said, citing standard tools and tools that have not been used for a long time, without elaborating.

Last week, the monetary policy committee held the benchmark interest rate at 0.25% and said that given the turnaround in the inflation environment, monetary policies of major central banks, the slowing in the global economy and continued appreciation of the shekel, the interest rate would not be increased for an extended period.

The statement was a reversal from one in previous decisions that said the path of rate hikes would be “gradual and cautious”.

“The message changed because the data changed,” Yaron said on Sunday. “In a relatively short time, we saw a decline in inflation, a change in the direction of global monetary policy, a worsening of risks to the global economy and a relatively sharp appreciation of the (shekel) exchange rate.”

Still, he said Israel’s economy was growing at a good pace with a tight labour market, and the slowdown globally has not yet impacted growth, “not even exports”.

Yaron also said the central bank will intervene in the foreign exchange market if it deems the shekel exchange rate deviates substantially from the level it believes is warranted. “And no one will receive a warning letter from us ahead of time,” he said.

The shekel has appreciated 5.5% versus the dollar so far in 2019, helping to push inflation down. (Reporting by Steven Scheer; Editing by Ari Rabinovtch and Alison Williams)

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