No Bank of Israel rate hike this week but tightening likely soon: Reuters poll

Summary Rate decision due at 1400 GMT on Monday

Inflation rate at 3.1% in January, highest since 2011

Israel economy grew 8.1% in 2021, faster than expected

JERUSALEM, Feb 20 (Reuters) – The Bank of Israel is expected to keep short-term interest rates unchanged this week, its 15th such decision in a row, although analysts believe rapid economic growth and rising inflation will push rates higher in the coming months.

All 16 economists polled by Reuters forecast that the central bank’s 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. (1400 GMT).

In keeping rates steady last month, Bank of Israel Governor Amir Yaron said Israel did not have an inflation problem like other countries and that allows for patience in examining the developments and in conducting monetary policy.

However, since the Jan. 3 decision, data showed that the annual inflation rate rose to 3.1% in January — above the government’s 1-3% target range and the first time it topped 3% since 2011.

Meanwhile Israel’s jobless rate has returned to pre-COVID-19 levels and the bank estimates the economy will grow 5.5% this year. GDP growth in 2021 was 8.1% in 2021, above the central bank’s 6.5% forecast. read more

“The strong GDP print, along with signs that labour markets keep improving, should further reduce lingering doubts about the robustness of the economy, said Citi economist Michel Nies.

“We expect the Bank of Israel to start communicating in the next meeting that a gradual normalisation of very low rates, rather than a policy tightening, will be in the cards in the second quarter of this year.”

The bank’s forecast is for no more than a 15 basis point rate increase this year but analysts now expect hikes to start sooner and reach as much as 0.75% this year — with increases likely to begin as early as the April meeting, after an expected move by the U.S. Federal Reserve in March.

“Risks are rising for the authorities to begin normalising rates as the economy gathers steam and inflation continues to surprise on the upside,” said Barclays economist Raisa Muhtar.

Still, economists said the next two meetings will likely be used by the monetary policy committee to prepare the markets, with May the more likely decision for a rate hike.

“First, they have to say something about it,” said Alex Zabezhinsky, chief economist at the Meitav Dash brokerage. “If they are going to change policy, they will emphasise that the change will be gradual.”

Reporting by Steven Scheer Editing by Raissa Kasolowsky

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