Israel cbank keeps benchmark interest rate steady at 1.75 pct

Shekel hits 1-mth low vs dollar

JERUSALEM, Feb 25, (RTRS): The Bank of Israel left its benchmark interest rate at 1.75 percent on Monday for a second straight month, as it awaits the formation of a government that faces a large budget hole and more data to see whether the economy is weakening.

Analysts had thought the decision could go either way and many now expect a rate cut next month, the last decision until May.

The central bank had reduced its key rate in October and December to support a slowing economy stemming partly from weakening exports, while inflation was tame. It opted against a move in late January due to signs of economic and price stability.

Israel’s economy in 2013 is forecast to grow 2.8 percent, excluding natural gas production, after 3.2 percent growth last year. The annual inflation rate eased to 1.5 percent in January and is slated to reach 2.4 percent in a year’s time - within a government target of 1-3 percent.

Israel’s shekel fell to its lowest in nearly a month against the dollar on Monday, ahead of a possible Bank of Israel interest rate cut and speculation that the central bank could intervene again.

The shekel was at 3.717 per dollar at 1430 GMT, compared with 3.710 on Friday when the Israeli currency slipped 1 percent.

AReuters poll found seven of 11 economists believe the Bank of Israel will stand pat later in the session (1530 GMT) but the market sees a 50-50 chance of a quarterpoint reduction to 1.5 percent, which would be the third cut in five months.

The shekel reached a 15-month peak of 3.66 per dollar last week but dealers said significant dollar buying by foreign banks and local customers buoyed the dollar the past couple of sessions.

A dealer at Israel Discount Bank said that if the central bank holds rates on Monday, the shekel would likely appre- ciate again. He noted that some banks would also sell dollars if it reached 3.743.75 shekels.

Koon Chow, an emerging markets strategist at Barclays Capital, said he had closed his trade recommendation of being long shekel.

“Our view on the shekel’s fundamentals has moderated, reflecting the softening growth profile of the Israeli economy,” he wrote in a note to clients on Monday. “This argues, at the very least, for waiting for cheaper/weaker levels before being long shekel again.”

Chow noted that the shekel remains strong and is on a par with levels in mid2011 - when the Bank of Israel last intervened - on a trade-weighted basis.

“The Bank of Israel may be very reluctant to re-initiate interventions but could certainly warn of action or other quantitative steps, which could weaken the shekel,” he said.

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