BoI keeps key interest rate at 0.1%

The Bank of Israel held its benchmark interest rate at 0.1 percent for a 12th straight month on Monday, prompted by a rebounding economy in the second half of 2015 and a slower decline in price falls in January.

The central bank reiterated that monetary policy will remain accommodative for a considerable time.

While there was some acceleration in economic growth in the fourth quarter of 2015, “initial indicators for the first quarter of 2016 point to a mixed picture,” the Bank of Israel said in a statement. “The effect of the security situation on economic activity remains moderate and is reflected mainly in tourism.”

The central bank said the risks to achieving the inflation target and to growth remain high.

The economy grew an annualized 3.3 percent in the fourth quarter of 2015, while growth for all of 2015 was 2.6%. Growth is projected at 2.8% in 2016.

The annual inflation rate improved to a minus-0.6% rate in January from minus-1.0% in December. Israel, whose inflation target is 1% to 3% a year, has been in a deflationary trend for 17 months largely due to lower oil prices.

“Medium- and long-term expectations are anchored within the target range,” the central bank said.

All 14 economists polled by Reuters had forecast no rate change. The central bank’s own economists expect the rate to stay on hold at least until the fourth quarter, when it is expected to gradually rise.

The central bank noted that since the last monetary-policy discussion on January 24, the shekel strengthened by about 1.5% against the dollar and by 0.3% in terms of the nominal effective exchange rate.

Over the past year there has been an appreciation of 2.8% in terms of the nominal effective exchange rate, “and its level continues to weigh on growth of exports and the tradable sector,” it said.