Israel's
central bank is expected to leave short-term interest rates unchanged for a
26th straight month on Monday, as the economy softened in the first quarter
while inflation eased last month.
All 10
economists polled by Reuters forecast the Bank of Israel would hold its
benchmark rate ILINR=ECI at 0.1 percent at 4 p.m. (1300 GMT). Last month, all
four rate setters voted to hold rates.
In a
preliminary estimate, Israel's economy grew an annualized 1.4 percent in the
first quarter, its slowest pace in almost two years and well below a Reuters
consensus of 3.7 percent growth. The numbers, including a 4.7 percent spurt in
the prior three months, were viewed as a distortion due to changes to the way
cars are taxed at the start of 2017.
Growth was 4
percent in 2016 but is expected to slow to around a 3 percent pace in 2017.
Similarly,
the annual inflation rate slipped to 0.7 percent in April from 0.9 percent in
March to remain below the government's annual target of 1-3 percent.
"The
decline in growth does not reflect a significant decline in domestic activity,
but rather growth 'normalizing' from an exceptionally high base last
year," said Goldman Sachs economist Sara Grut.
Still, she
said that given the lower inflation and lower growth, together with the central
bank's "dovish forward guidance" to maintain the accommodative policy
as long as necessary in order to entrench the inflation environment within the
target, "we find it unlikely that the Bank of Israel will tighten policy
over the next year".
The central
bank's own economists expect the next move to be a hike, coming in the second
quarter of 2018.
One
annoyance for the central bank has been the strength of the shekel ILS=, which
stands at a 28-month peak against the dollar at a 3.57 rate. The shekel is also
at an all-time high against a basket of currencies of Israel's main trading
partners such as the dollar, euro, yen and pound.
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