Israel’s central bank kept its benchmark interest rate unchanged at 0.1 percent for a 24th straight month on Monday, effectively dismissing a huge boost in economic growth as an anomaly.

It said extraordinary factors had boosted economic growth at the end of 2016 – a far larger-than-expected annualized rate of 6.2 percent in the fourth quarter.

The jump was based on an “atypical increase” in sales of vehicles reflecting purchases being brought forward in advance of a revision of taxes at the start of 2017.

Forwarding the News

Thoughtful, balanced reporting from the Forward and around the web, bringing you updated news and analysis each day.

Terms(Required)

I agree to the Forward's Terms of Service and Privacy Policy

Email(Required)

“Net of this increase, it may be assessed that the growth rate was slightly above 3 percent … only slightly higher than the basic growth rate of previous years,” the Bank of Israel said.

For all of 2016, Israel’s economy grew 4 percent and is projected to grow 3.2 to 3.5 percent in 2017.

At the same time, a trend of falling prices ended after 28 months when the annual inflation rate rose 0.1 percent in January from a fall of 0.2 percent in December.

The central bank played this down too. The increase stemmed from a change in the trend of energy prices and a dissipation of government mandated price reductions, it said.

It expects inflation will reach 1 percent – the bottom of the government’s 1-3 percent annual target – in late 2017.

“The Monetary (Policy) Committee is of the opinion that the risks to achieving the inflation target remain high, yet the increases in wages and in global inflation are expected to support the return of inflation to the target,” the Bank of Israel said.

All 10 economists polled by Reuters had forecast no change by the central bank, which is widely expected to keep rates unchanged until at least late 2017.

The next decision is slated for April 6. The bank will only decide on rates 8 times a year starting in 2017, down from 12 previously.

STEADY RATES

A report from the central bank last week showed that policymakers were no longer considering further rate reductions that would bring rates below zero or using unconventional monetary tools like bond purchases given a rebound in economic growth and higher inflation.

Its own economists forecast steady policy through the third quarter of 2017 and a 15-basis-point rise in the fourth quarter, followed by another quarter-point increase to 0.5 percent in 2018.

One policy member, however, believes that the pace of hikes will probably be faster, according to minutes of recent discussions.

Rather than reduce rates, which would be hard, the central bank said it focuses on buying dollars. That weakens the currency, building inflation and boosting exports.

The shekel, however, stands at a two-year high against the dollar at a rate of 3.66 and is also at a 15-year peak against the euro.

Since the last rates decision a month ago, the shekel has gained 3 percent against the dollar. The central bank said the strong shekel continues to weigh on goods exports, even as exports improved in 2016.

The bank also noted that while there as been a sharp decrease in home prices of late, it was too early to assess if the trend in home costs was changing.

The Forward is free to read, but it isn’t free to produce

I hope you appreciated this article. Before you go, I’d like to ask you to please support the Forward.

Now more than ever, American Jews need independent news they can trust, with reporting driven by truth, not ideology. We serve you, not any ideological agenda.

At a time when other newsrooms are closing or cutting back, the Forward has removed its paywall and invested additional resources to report on the ground from Israel and around the U.S. on the impact of the war, rising antisemitism and polarized discourse.

Readers like you make it all possible. Support our work by becoming a Forward Member and connect with our journalism and your community.

This is a great time to support independent Jewish journalism you rely on. Make a gift today!

—  Rachel Fishman Feddersen, Publisher and CEO

Support our mission to tell the Jewish story fully and fairly.

$90 $180

$360

Other amount