July 4, 2019 / 11:28 AM / 12 days ago

Bank of Israel to hold key rate at 0.25%, temper hike expectations: Reuters poll

JERUSALEM (Reuters) - Israel’s central bank is expected to leave short-term interest rates unchanged for a fifth straight decision next week and to scale back expectations for future increases due to renewed global economic weakness.

All 12 economists polled by Reuters said policymakers would leave the Bank of Israel’s benchmark rate ILINR=ECI at 0.25% when it announces its decision at 4 p.m. (1300 GMT) on Monday.

After making a surprise increase from 0.1% last November, the Bank of Israel has left the key rate unchanged at its subsequent policy meetings in January, February, April and May.

“When the other central banks, especially the Fed and the ECB, are already preparing to expand again, it will be extremely difficult for the Bank of Israel to raise interest rates in this environment,” Psagot chief economist Ori Greenfeld said.

He noted that with data pointing to weaker economic growth in the second quarter, “we do not see the possibility of interest rate hikes in Israel within the foreseeable future”.

At its last decision on May 20, four of the five monetary policy members voted for steady rates, while one sought a quarter-point increase to 0.5%.

Along with the rates decision, the Bank of Israel will publish updated economic estimates on Monday. In April, the bank’s staff projected a rate increase to 0.5% toward the end of the third quarter of 2019 and two more hikes in 2020 to bring the rate to 1.0% by the end of next year.

“We expect the Bank of Israel to signal that the chances of a significant interest rate hike have declined significantly,” said Ofer Klein, head of economics and research at Harel Insurance and Finance.

The central bank in April trimmed its 2019 growth estimate to 3.2% from 3.4% and maintained a 3.5% forecast for 2020.

It also foresees an inflation rate of 1.5% in 2020 and 2021, within the government’s 1-3% annual target. Annual inflation gained to a 1.5% rate in May from 1.3% in April.

Boosted by one-time factors, the economy grew an annualized 4.8% in the first quarter but analysts expect slower growth in the rest of 2019.

Another factor against a rate rise is the strong shekel ILS=, which has appreciated nearly 5% versus the dollar so far this year.

Reporting by Steven Scheer; Editing by Frances Kerry

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