Bank of Israel set to hold rates on Monday, with hikes soon – Reuters poll

The Bank of Israel building is seen in Jerusalem on June 16, 2020. REUTERS / Ronen Zvulun / File Photo

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  • Pricing decision due 1400 GMT on Monday
  • Inflation rate at 2.4% in November vs 2.3% in October
  • Israeli shekel at 26-year high against the dollar
  • Central Bank to Release Updated Macroeconomic Forecast

JERUSALEM, Jan.2 (Reuters) – The Bank of Israel is expected to keep short-term interest rates unchanged this week, its 14th consecutive move, although analysts expect a hawkish tone that could lead to higher rates. high in the coming months as inflationary pressures mount.

The 12 economists polled by Reuters predict that the central bank’s Monetary Policy Committee (MPC) will keep the benchmark rate (ILINR = ECI) at an all-time low of 0.1% when the decision is announced at 4 p.m. (2 p.m. on Monday). GMT).

While other countries have faced soaring inflation, Israel has failed to cope, largely because of a very strong shekel which rose to a 26-year high against the dollar and kept import prices low. The annual inflation rate stood at 2.4% in November, well below the official target of 1-3%.

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Bank of Israel Governor Amir Yaron told Reuters last month that the central bank was in no rush to raise interest rates since inflation was under control. Read more

However, analysts consider rising inflation inevitable, especially with a tightening labor market in which the broadest measure of the unemployment rate has fallen to 6.5%.

“Inflationary pressure is likely to become persistent and require further hikes,” BofA Securities economists said in a report, predicting rates would be raised from the second quarter and end of 2022 to 1%.

The six rate-setting officials voted to keep the benchmark interest rate at 0.1% at its previous meeting on November 22 after a policymaker voted for a rate hike to 0.25% on October 7. They cited real interest rates in Israel as negative. and at a level similar to those of major economies.

The central bank also largely let the shekel strengthen as the currency’s gains stem from a strong economic rebound from the COVID-19 pandemic, a current account surplus and large inflows of foreign capital into the sector. of high technology.

The shekel appreciated for most of 2021 despite the bank buying a planned $ 30 billion in foreign currency. Yaron said the bank would still step in when needed, but without a pre-announced amount, as it did last year.

The Israeli economy, according to the bank’s latest estimate in October, is expected to have grown 7% in 2021 and is expected to grow 5.5% this year.

On Monday’s decision, the bank will release updated macro forecasts and Yaron will hold its quarterly press conference at 4:15 p.m.

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Reporting by Steven Scheer, editing by Louise Heavens

Our Standards: Thomson Reuters Trust Principles.

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