November 4, 2018 / 3:19 PM / in 6 months

Israel central bank chief - Don't raise rates too fast or too slow

FILE PHOTO: Governor of the Bank of Israel, Karnit Flug speaks at the Bank of England conference 'Independence 20 Years On' at the Fishmonger's Hall in London, Britain September 29, 2017. REUTERS/Afolabi Sotunde

JERUSALEM (Reuters) - Karnit Flug, the outgoing governor of the Bank of Israel, cautioned policymakers not to raise short-term interest rates too fast or too slow.

“Now, following almost four years of keeping the interest rate at 0.1 percent, it seems as if the era of gradual normalization is approaching,” Flug told a farewell conference in her honour.

“The committee’s challenge will be to move not too fast, so as not to choke the process of entrenchment of the inflation environment within its target range and not too slow so as not to find themselves behind the curve.”

After a long period of disinflation and inflation below the government’s annual target range of 1 to 3 percent, Israel’s inflation rate now stands at 1.2 percent, although economists expect the rate to temporarily dip back below 1 percent in the coming months.

Flug’s term ends on Nov. 12 and she has opted not to stand for a second five-year tenure.

U.S. finance professor Amir Yaron has been nominated to replace Flug but has yet to be approved by a special vetting committee. Yaron’s appointment also needs government approval.

In the meantime, Flug’s deputy Baudot-Trajtenberg will be acting governor and likely head the upcoming policy decision on Nov. 26.

The central bank’s own economists expect the key rate to begin rising in the first quarter, with a total of 40 basis points of tightening in 2019.

Reporting by Steven Scheer; Editing by Emelia Sithole-Matarise

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