Bank of Israel to hold rates, vaccinations to fuel economic rebound

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

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  • Rate decision due at 1300 GMT on Monday
  • Inflation rate at 0.2% in March, first time positive in a year
  • Economy contracted 2.6% in 2020, seen growing sharply in 2021
  • More than half of Israelis already received 2nd COVID vaccine shot
  • reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?

JERUSALEM, April 18 (Reuters) - The Bank of Israel is expected to leave short-term interest rates unchanged this week for an eighth straight meeting amid an economic rebound thanks to a rapid COVID-19 vaccination roll-out.

All 16 economists polled by Reuters believe the monetary policy committee (MPC) will keep the benchmark rate (ILINR=ECI) at an all-time low of 0.1% when the decision is announced on Monday at 4 p.m. (1300 GMT).

The next policy move is widely expected to be a rate hike but not until at least 2022.

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Israel's economy grew an annualised 6.5% to end 2020 on a positive note, the Central Bureau of Statistics said on Sunday in its third estimate of the October-December period. The gain followed a 42.3% surge in the third quarter.

For all of 2020, the economy contracted 2.6% but outperformed most Western countries in the OECD where the average contraction was 5.5%.

Israel's inflation rate improved to 0.2% in March from 0.0 in February - well below an official annual 1%-3% target but it turned positive for the first time in a year.

"Having expressed its preference for direct foreign exchange intervention more expressly, and having already clearly exited deflation in February" the central bank will hold its rate again, said Barclays economist Raisa Muhtar.

Economic growth looks to rebound in 2021, with the Bank of Israel forecasting a 6.3% rise if the rapid pace of Israel’s COVID-19 vaccination campaign is maintained.

The central bank will update its macro forecasts on Monday.

Israel, with a population of 9.3 million, has emerged from a third lockdown. Some 5 million people have already received two inoculation doses, resulting in a steep drop in the number of daily infections to about 200.

Much of the economy, such as restaurants, is has already opened and Israel is starting to slowly open its borders to foreign tourists. read more

At the prior meeting on Feb. 22, five of the central bank's six policymakers voted to hold the key rate.

Since the pandemic began, the central bank has lowered its key rate once - from 0.25% in April. Instead, it has relied on buying government and corporate bonds and offering cut-rate loans to banks to encourage lending to small businesses.

It has bought nearly $14 billion of forex the first three months to help stem the shekel's gains.

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Reporting by Steven Scheer Editing by Raissa Kasolowsky

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