Bank of Israel Holds Benchmark Interest Rate at 0.1 Percent for 20th Straight Month

The Bank of Israel held its benchmark interest rate at 0.1 percent for a 20th straight month on Thursday, citing improved inflation and "positive" economic growth.

• Israeli Cabinet Gives Backing to Bank Reforms
• Inflation Shows a Surprise Rise, but Home Prices Dip
• Israel’s Central Bank Chief Teaches a Lesson to Bad-budget Bibi

All 12 economists polled by Reuters had forecast no change by the central bank, which is widely expected to keep rates steady until at least late 2017.

The Bank of Israel reiterated that, like other global central banks, it will keep monetary policy accommodating for a considerable time.

Israel's economy grew an annualized 4.3 percent in the second quarter, according to the government's third estimate, revised up from previous 4.0 percent. Growth was led by consumer spending but exports rebounded from recent weakness.

"The picture of real economic activity remains positive, with second quarter growth driven by growth in all uses," the central bank said. Its companies survey indicated that growth had continued in the third quarter, it added.

It added that the labour market - where the jobless rate stands at 4.6 percent - remains healthy, with growth in employment and wages.

The central bank last month raised its economic growth forecast for this year to 2.8 percent from 2.4 percent, and for next year to 3.1 percent. It also expects inflation to reach 1 percent in a year's time.

The inflation rate narrowed to minus 0.4 percent in September from minus 0.7 percent in July, staying well below the government's annual target range of plus 1-3 percent. Israel has been in a deflation trend for 25 months.

While the rate is still negative, the central bank has long attributed it to declines in oil and other commodities prices and government tax reductions.

"But the effects of the decline in energy components and of initiated price reductions are contracting," the Bank of Israel said, adding that the risks to achieving the inflation target remained high.

It said that, since the last rates decision, the shekel weakened by 2.2 percent against the dollar and 0.5 percent against a basket of currencies of main trading partners. Nevertheless, the level continues to weigh on exports, the bank said.

Housing prices, the central bank said, continue to rise along with an increase in the stock of unsold new homes. But mortgage volumes are stabilising as mortgage rates rise.

Starting in 2017, the bank will shift to just eight decisions a year from the current 12.