By Steven Scheer
JERUSALEM, Oct 20 (Reuters) – Israel’s central bank is expected to hold the line on short-term interest rates on Wednesday after three successive reductions, as policymakers will likely pause ahead of next week’s election despite stable inflation, a Reuters poll showed.
After cuts in May, July and September, all 15 economists polled expect the Bank of Israel to keep its benchmark interest rate at a four-year low of 3.25% when the decision is announced on Wednesday at 4 p.m. (1300 GMT).
There have been five 25 basis point rate cuts in the current easing cycle, which began last November as inflation has moved to well within the government’s 1%-3% inflation target range. At least one more reduction to 3% is widely expected — a divergence from a broader global trend of tighter monetary policy.
Economists believe a rate cut on Wednesday could benefit Prime Minister Benjamin Netanyahu in the October 27 election. Opinion polls show both Netanyahu’s bloc and the main Jewish-led opposition parties, headed by former military chief Gadi Eisenkot, falling short of securing a majority.
Barclays said political uncertainty would keep the central bank on hold this decision, while IBI Chief Economist Rafi Gozlan said markets fear that a Netanyahu-led bloc would raise Israel’s risk premium “primarily due to concerns over adverse implications for both foreign relations and the security situation, as well as the standing of domestic institutions.”
Israel’s inflation rate edged up to a less-than-forecast 1.6% in September from a five-year low of 1.5% in August. At the same time, the economy bounced back sharply in the second quarter with 15.4% annualised growth while the shekel has weakened to a nine-month low versus the US dollar.
NOVEMBER CUT IN VIEW
After the September rate cut, Deputy Bank of Israel Governor Andrew Abir told Reuters that rates could continue to decline should price pressures remain stable and depending on how the economy reacts to three straight rate cuts.
Citi economist Michel Nies said that “remarkably” low inflation was a compelling reason to ease further this month.
“The Bank of Israel might choose to skip (this) week, but the November meeting, when elections will be out of the way and the October inflation print will likely be another low reading, might present itself as a good opportunity,” Nies said.
“The activity side of the economy does not suggest any sense of urgency — monthly indicators of output continue broadly at trend and labour markets remain tight,” he said, pointing to the shekel’s move and geopolitical risks along with the election. “We find it difficult to see why the Bank of Israel would want to rush in another rate reduction.”
In addition to the rates decision, the central bank will issue its quarterly macroeconomic estimates and Bank of Israel Governor Amir Yaron will hold a news conference at 1315 GMT.
(Reporting by Steven Scheer; Editing by Xevi Fontdegloria)
Comments