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Israel central bank to hold key rate despite strong shekel

11/29/2020 | 06:05am EDT

* Rate decision due at 1300 GMT on Monday

* Shekel at 3.31 per dollar, strongest since mid-2008

* Central bank prefers bond buying, low rate loans to banks

* Israel economy grew nearly 40% annualised in Q3

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?

JERUSALEM, Nov 29 (Reuters) - The Bank of Israel is expected to keep short-term interest rates unchanged for a fifth meeting after signalling it was unwilling to lower rates to zero or make them negative and opting for other steps to support a recovery from the coronavirus crisis.

Of 16 economists polled by Reuters, 15 believe the monetary policy committee (MPC) will keep the benchmark rate at an all-time low of 0.1% when the decision is announced on Monday at 4 p.m. (1300 GMT) -- its last meeting of 2020.

One foresees a reduction to zero due to an inflation rate of -0.8% and a 12-1/2 year peak in the shekel versus the dollar.

"They are totally done" cutting rates, said Leader Capital Markets Chief Economist Jonathan Katz, echoing the sentiments of most other analysts.

At its prior meeting on Oct. 22, five of the six policymakers voted to hold the key rate.

Deputy Governor Andrew Abir told Reuters said afterwards there was little reason to push its key rate to zero or below given low borrowing costs for consumers and businesses.

He said the central bank could hold off from further action if the economy started to recover from the coronavirus pandemic, no more lockdowns were needed and access to credit grew.

Since the pandemic began, the central bank has lowered its key rate once -- from 0.25% in April -- and has relied on other measures, such as buying government and corporate bonds and offering cut rate loans to banks to encourage lending to small businesses.

In addition to the rates decision, the Bank of Israel will update some macro estimates. It currently forecasts an economic contraction of 5% to 6.5% in 2020, depending on whether the virus is contained and further lockdowns are needed.

It foresees growth of 1% to 6.5% in 2021.

The economy grew an annualised 37.9% in the third quarter, according to preliminary data, after a 29.8% contraction in the previous three months.

One issue for the central bank is the shekel, which stands at 3.31 per dollar -- its strongest level since mid-2008.

"The Bank of Israel will continue to concentrate on foreign exchange purchases to deal with the strong currency, as a further rate cut is unlikely to help weaken the (shekel) by much," said Barclays economist Michael Kafe.

($1 = 3.3164 shekels) (Reporting by Steven Scheer; Editing by Edmund Blair)

© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BARCLAYS PLC 1.09% 167.12 Delayed Quote.13.94%
US DOLLAR / ISRAELI NEW SHEKEL (USD/ILS) -0.13% 3.2671 Delayed Quote.1.84%
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