Israel holds rate, sees economy accelerating in Q1

    Israel's central bank maintained its benchmark interest rate at 0.75 percent, as expected, citing some acceleration in the economy's expansion in the first quarter of this year, a weakening of the shekel and weak growth in emerging market economies, steady inflation expectations and a continued rise in home prices.
    The Bank of Israel (BOI), which made a surprise 25 basis point cut to its rate in February, also repeated its guidance that future rate changes depend on the inflationary environment, economic growth in Israel and the global economy, monetary policy of major central banks and the shekel's exchange rate.
    Israel's headline inflation rate rose to 1.3 percent in March from 1.2 percent, with the bank saying the housing component increased notably while there were marked declines in clothing, fruit and vegetables.
    Private forecasters projections for the next 12 months eased slightly to 1.5 percent on average, but medium and long-term forecast were steady, slightly above the BOI's midpoint inflation target of 2.0 percent, within a range of plus/minus one percentage point.
    The BOI added that private forecasters are not expecting any rate changes in coming months.
    The BOI's rate cut in February was in reaction to a surprise fall in inflation in January, pessimism among consumers and continued strength in the shekel, which harms exporters. In 2013 the BOI cut its rate by 75 basis points, partly in response to the strong shekel.
    In its March forecast, the BOI projects inflation until the first quarter of 2015 at 1.6 percent, with the benchmark interest rate to begin rising at a moderate rate in 2015.
     Activity in Israel's economy was recently revised upward for the fourth quarter of last year to 3.2 percent and "data that became available this month indicate that in the first quarter there was some acceleration in the expansion of the economy, led by domestic demand and services exports, and with a virtual standstill in goods exports," the BOI said.
    Last month the BOI cut its 2014 growth forecast to 3.1 percent, with Gross Domestic Product growth excluding the impact of natural gas production at 2.8 percent. In 2015 GDP is forecast to expand by 3.0 percent.
    Israel's shekel rose by 0.3 percent against the U.S. dollar since the last monetary policy meeting of the BOI, trading at 3.48 to the dollar today. Year to date, the exchange rate has risen 0.2 percent, but is up 4.5 percent over the past 12 months, the central bank said.

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