(Adds details, Bank of Israel quotes)
By Steven Scheer
JERUSALEM, March 12 (Reuters) - Israel’s interest rates decision last month was not unanimous for the first time in three years, with one policymaker breaking ranks to argue for a rate increase despite near-zero inflation, minutes of the discussions showed on Monday.
In keeping the benchmark interest rate steady at 0.1 percent on Feb. 26, five of the six monetary policy members argued that inflation was low and that there is a need to keep the interest rate at its low level in order to support its return to within the government’s annual 1 to 3 percent target range.
“Increasing the interest rate before the entrenchment of inflation within the target range is liable to ultimately delay the return of the interest rate to higher levels, due to its possible impact on the exchange rate and on inflation expectations,” the minutes said.
It added that the shekel was “over-appreciated”.
One MPC member saw room for further monetary accommodation if the inflation rate remains below target and should wage gains moderate.
Israel’s inflation rate stood at 0.1 percent in January. Central bank economists expect inflation to top 1 percent by year-end and trigger a 15-basis-point rate increase to 0.25 percent in the fourth quarter. Most private economists believe rates will remain on hold until 2019.
The last time the central bank altered rates was Feb. 23, 2015, when it lowered the rate to 0.1 percent from 0.25 percent - a move that four of the five panel members at the time backed.
From late 2015 through most of 2017, the MPC operated with four members. Last October, it became full once again with two members appointed by the government.
Since January, one member has taken a contrarian view of monetary policy. In voting for a 15-basis-point rate increase last month, the dissenter argued that low inflation was not due to low demand but rather to the fact prices in Israel are relatively high and the government was taking steps to reduce the cost of living.
“This committee member was of the opinion that less emphasis should be placed on the over-appreciated level of the exchange rate in view of the economy’s switch from goods exports to services exports and the growth in world trade, which are expected to reduce the sensitivity of exports to the level of the exchange rate,” the minutes said.
Instead, the dissenter maintained, other areas like how the continued low interest rate impacts on asset prices and savings should be taken into account in monetary policy.
The MPC also said the economy was growing at a pace similar to its potential growth rate while the labour market was tight and data continued to point to a moderation of housing demand.
Editing by Mark Heinrich