January 23, 2020 / 12:36 PM / a month ago

Four of five Bank of Israel MPC members voted to hold key rate

JERUSALEM (Reuters) - Four of the five rate setters at the Bank of Israel voted to keep the benchmark interest rate ILINR=ECI at 0.25% on Jan. 9, minutes of the discussions showed on Thursday.

The fifth member supported a reduction to 0.1%.

Monetary policy committee members (MPC) said there was no reason to lower rates given solid economic growth, a tight labor market, inflation that is expected to move back into its 1-3% target range in a year, and the U.S. and European central banks apparently having exhausted rate reductions for now.

Still, the four who voted for steady rates acknowledged risks to economic activity and inflation were significant and “that to the extent needed, the bank will continue to intervene in the foreign exchange market”.

“Three of them even noted that there may be a need to enhance the extent of monetary policy accommodation going forward,” the minutes said.

Bank of Israel Governor Amir Yaron said on Jan. 9 that there needed to be a more significant deterioration in economic activity for the central bank to lower rates.

The member voting for a cut argued that the shekel’s appreciation could adversely impact economic activity and a continued decline in the inflation rate, which was 0.6% in 2019.

In addition, “the moderation of economic activity worldwide is a significant risk, and that together with the expected impact of the fiscal contraction, requires an enhancement of the level of monetary accommodation,” the member said.

The MPC agreed that using an interim budget due to an ongoing political stalemate would likely have a moderating impact on the economy this year, along with uncertainty regarding policies after the March 2 election.

Policymakers have said they prefer intervention in the foreign exchange market to rate cuts. The bank has bought more than $3.5 billion of foreign currency since its prior decision on Nov. 25.

“The Bank of Israel is prepared to prevent anomalous appreciation of the shekel by purchasing foreign exchange whenever necessary, and particularly if it will derive from relatively short-term financial factors,” the minutes said.

Reporting by Steven Scheer; Editing by Tova Cohen and Alex Richardson

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