* Rate decision due at 1300 GMT on Monday
* Shekel stays strong, inflation moves to -0.6% rate
* Israel economy shrinks 28.7% in Q2
* Central bank sees 4.5% contraction in 2020
JERUSALEM, Aug 20 (Reuters) - The Bank of Israel is expected to keep short-term interest rates unchanged next week for a third straight meeting due to a more optimistic economic outlook this year and amid political and fiscal uncertainty.
All 13 economists polled by Reuters believe the monetary policy committee (MPC) will keep its benchmark rate at 0.1% when the decision is announced on Monday at 4 p.m. (1300 GMT). The central bank will also update its macro estimates.
The MPC lowered the rate from 0.25% in April but rather than go to zero or below, the bank has opted to focus on calming financial markets during the coronavirus crisis and ensuring cheap credit while introducing measures such as buying corporate bonds.
Five of the six MPC members voted to hold rates steady in July.
Bank of Israel Governor Amir Yaron said this week the bank projects Israel’s economy will shrink 4.5% in 2020 as long as the coronavirus status quo remained -- compared with a 6% contraction estimate at the prior rates decision in early July.
Yaron said the economy would shrink some 7% if the COVID-19 pandemic worsened and required another lockdown.
Economists said that the upward revision eliminated a chance of a rate reduction this month despite a strengthening shekel, although the jobless rate stands at 21%.
IBI economist Rafi Gozlan said there should not be a rate cut since the growth and inflation environments did not deteriorate since the July 6 meeting, while policymakers “probably want to wait to see how the political issue evolve -- if there is a budget or an another election”.
Prime Minister Benjamin Netanyahu and his finance minister Israel Katz want to approve a budget only for the rest of 2020 while his coalition partner, defence minister Benny Gantz, is holding firm on a budget for both 2020 and 2021. Failure to pass a budget by Aug. 25 would trigger a new election.
Israel’s economy shrank an annualised 28.7% in the second quarter from the prior three months, which was among the best of among Western countries, while the annual inflation rate was -0.6% in July versus -1.1% in June. (Reporting by Steven Scheer; Editing by Hugh Lawson)
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