Bank of Israel holds benchmark interest rate at 0.1 percent
Central bank cites stable shekel, mixed data, and improved inflation outlook in decision to leave rate unchanged.
The Bank of Israel left its benchmark interest rate at 0.1 percent for a third straight month on Monday, citing a stable shekel, mixed economic data and an improved inflation outlook.
Most economists had expected no move in the wake of the annual inflation rate moving to -0.5 percent in April from -1.0 percent in March. The central bank noted that the expectation for inflation in a year's time is around 1 percent, the lower bound of the government's 1-3 percent annual target.
Last week, Bank of Israel Governor Karnit Flug said the improvement in inflation "makes life slightly easier", a signal the central bank would be able to wait longer before cutting rates again.
Some analysts still believe policymakers will lower the key rate to zero in the coming months.
Israel's economy grew a weaker-than-expected 2.5 percent in the first quarter, although analysts pointed to a jump in private spending as a good sign for the economy, which is forecast to grow 3.2 percent this year.
"Indicators of real economic activity remain mixed, and point toward continuing growth at the rate that prevailed in the past two years," the Bank of Israel said.
It noted that the business sector grew in the first quarter, while the unemployment rate continued to decline, and tax revenue data indicate continued growth in private consumption.
But data point to a contraction in goods exports and to an absence of growth in services exports over recent months, the central bank said.
It noted that while the shekel gained 1.3 percent versus the dollar since the previous rates decision in late May, the currency remained stable in terms of the nominal effective exchange rate.
The shekel appreciated to 3.868 per dollar after the decision, from 3.89 prior.
"With this step we see the Bank of Israel is satisfied with what is happening in the markets and it seems like the bank is waiting for the formation of the government's policies and the fiscal steps that will happen soon," said Roni Solomon, head of the advisory department at Batucha Mortgages.
