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Bank of Israel says preparing for "renormalisation" of interest rates
January 2, 2017 / 1:33 PM / 10 months ago

Bank of Israel says preparing for "renormalisation" of interest rates

JERUSALEM, Jan 2 (Reuters) - Israel’s central bank said on Monday that its medium-term policy goals would include preparing for an interest rate rise, though it gave no detailed time frame for when it might begin a tightening cycle with economic growth seen slowing this year.

Price stability would remain its chief aim, the Bank of Israel said, adding that an anticipated recovery in the global economy required the regulator to “prepare for a renormalisation of monetary policy” in the longer term.

“To that end, the Bank of Israel will continue to align the macroeconomic projection abilities with conditions created after the crisis and to take into account considerations related to financial stability when formulating monetary policy,” it said.

The central bank last week held its benchmark interest rate at 0.1 percent for a 22nd straight month. Its own economists project steady rates through the third quarter of 2017 and a 15 basis point increase in the fourth quarter.

Israel has been in deflation for more than two years, with the annual inflation rate at -0.3 percent in November. Inflation is expected to reach 1 percent late this year, the bottom of the government’s 1-3 percent annual inflation target.

Israel’s economy grew a provisional 3.8 percent in 2016 and is forecast to grow 3.2 percent this year.

Other three-year targets included increasing banking competition and efficiency, it said.

The bank said it wanted to bolster competition in retail credit areas, including lending to small businesses and the provision of payment and settlement systems, by supporting technology changes and setting up a national credit data register.

The central bank said per capita GDP may decline sharply later this decade due to changes in demographics. It said it would recommend to government policies support growth by boosting productivity and developing infrastructure and human capital.

It also said it would continue looking to expand the range of markets and assets in which it invests foreign exchange reserves. (Reporting by Steven Scheer; editing by Richard Lough)

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