Bank of Israel seen holding rates for fourth month

September 23, 2013 - 12:32:19 am

JERUSALEM:  Israel’s central bank is expected to leave short-term interest rates unchanged for a fourth straight month due to moderate economic growth and continued gains in home prices.

Along with a tame annual inflation rate of 1.3 percent, the most compelling reason to ease policy again would be a more than two-year peak of the shekel against the dollar at a level of 3.50. But analysts believe the Bank of Israel has other tools — such as market intervention — it is more likely to use to try to prevent a further appreciation of the currency.

That is because the benchmark interest rate is already at 1.25 percent and a quarter-point reduction would likely have minimal impact on the shekel or the economy, they say.

The Bank of Israel’s monetary policy committee has been led by deputy governor Karnit Flug since July, after Stanley Fischer stepped down at the end of June. Naming a replacement has hit a number of snags but the government is expected to announce a new governor in the coming weeks. 

The Bank of Israel is slated to announce its rates decision for October on Monday at 3pm (1200 GMT). It last lowered rates in May, by a total of 50 basis points in two reductions.

“The loose monetary stance that has been in place since the third quarter of 2012 remains intact but further easing is becoming unlikely,” said Tevfik Aksoy, an emerging markets economist at Morgan Stanley.

“The main issue (for the Bank of Israel) is the appreciation pressure on the currency,” he said, adding the shekel should stay strong due to a sound economy and natural gas output boosting Israel’s current account surplus.