November 23, 2017 / 1:15 PM / in a year

Israel central bank to keep key interest at 0.1 percent as inflation tame: Reuters poll

JERUSALEM (Reuters) - Israel’s central bank is expected to leave short-term interest rates unchanged for the 30th meeting in a row next week, with economic growth moderate and inflation near zero.

An Israeli flag flutters outside the Bank of Israel building in Jerusalem August 7, 2013. REUTERS/Ronen Zvulun/File Photo

All 10 economists polled by Reuters said the Bank of Israel would leave its benchmark rate at 0.1 percent. The decision is announced on Monday at 1400 GMT.

In October, the six rate setters voted unanimously to keep rates on hold.

Bank of Israel Governor Karnit Flug has said rates will not rise until inflation moves back to the government’s annual 1-3 percent target, which it believes to be at least a year away.

Its own economists foresee the interest rate remaining at 0.1 percent until a 15 basis-point rate increase in the fourth quarter of 2018.

The annual inflation rate edged up to 0.2 percent in October from 0.1 percent in September. [nJ7N1NL000]

“The Bank of Israel’s stated policy of not raising the interest rate as long as inflation is below target while the shekel continues to be strong will keep rates unchanged,” said Meitav Dash chief economist Alex Zabezhinsky.

Israel’s economy grew 4 percent last year but struggled in the first half of 2018, growing at an annualized 2.2 percent pace. Growth rebounded in the third quarter, with a preliminary estimate of 4.1 percent, buoyed by gains in exports, consumer spending and industrial investment. [nL8N1NM3B8]

Last month, the Bank of Israel — whose last interest rate move was a cut in February 2015 — trimmed its 2017 economic growth estimate to 3.1 percent from 3.4 percent, although it maintained a 3.3 percent growth projection for 2018.

Zabezhinsky sees an even lower 2.8 percent rate of growth next year on the view that consumer spending will slow more than the central bank expects.

The strength of the shekel is another conundrum for policymakers as strong currencies tend to put pressure on domestic prices. The shekel has held mostly steady at 3.51 to the dollar since its last rate decision on Oct. 19, but it has appreciated compared with 3.63 in August.

Reporting by Steven Scheer; Editing by Hugh Lawson

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