(Recasts, adds details, comments)
By Steven Scheer
JERUSALEM Jan 9 One member of the Bank of
Israel's monetary policy committee (MPC) believes interest rates
will rise faster than the central bank's forecast, according to
minutes of the Dec. 26 rates decision issued on Monday.
The minutes, which were less dovish than past months, showed
all four rate setters voted to keep the benchmark interest rate
at 0.1 percent for a 22nd straight month and said
monetary policy will remain accommodative for a considerable
But one member seemingly took issue with the central bank's
updated staff forecast, also issued on Dec. 26, that projects a
rate level of 0.25 percent by the end of this year and 0.5
percent at the end of 2018. That would indicate an increase of
just 40 basis points in the coming two years.
This MPC member, the minutes said, believes "the interest
rate path indicated by the research department forecast that was
presented to the committee is lower than what is reasonable to
assume will prevail in actuality."
"In his assessment, in light of the situation in the labour
market and real economic activity in Israel, which indicates
that the low inflation rate is not a result of weak demand, the
gap between the forecast for the expected interest rates in the
U.S. and Israel is too wide, despite the assessment that the
interest rate in Europe will remain negative," it added.
The Federal Reserve has started to tighten policy and is
forecast to raise U.S. interest rates three more times in 2017.
In holding rates steady last month, Israeli policymakers
cited continued deflation, where the annual inflation rate held
at -0.3 percent in November, despite the weakening of the
effects of "initiated price reductions" and of declines in
They noted that while it may take longer to reach the
government's 1-3 percent annual inflation target in the short
term, medium and long-term inflation expectations remained
anchored within the target range.
One MPC member said that the decline in prices in recent
years is an indication of a process of price levels for some
products that stems from social protests in 2011.
At the same time, Israel's economy bounced back in 2016 and
posted a 3.8 percent provisional growth rate, after a 2.5
percent pace the prior year, buoyed by strong consumer spending
that the central bank believes is due to incomes rather than
higher household leverage.
The central bank expects slower economic growth of 3.2
percent in 2017 and 3.1 percent in 2018.
The MPC stressed that Israel's labour market is near to full
It also cautioned over goods exports given an appreciation
of the shekel versus European currencies. The shekel
recently hit a 15-year peak against the euro.
The central bank will move to eight decisions per year in
starting in 2017 from a previous 12, with the next decision on
(Reporting by Steven Scheer; Editing by Ari Rabinovitch and Tom