Israel's central bank left its benchmark interest rate at 0.1 percent on Monday for a 13th straight month and said the eventual start of rate hikes would be delayed into 2017.
In citing the reasons for keeping the rate unchanged, the Bank of Israel said, "The inflation environment remained low this month as well, against the background of price reductions initiated by the government and low energy prices."
However, the increase in oil prices and the beginning of the exhaustion of the effect of administrative price reductions led to a relatively sharp increase in inflation expectations from all sources and for all ranges.
Based on the Research Department’s staff forecast, assuming that there are no sharp changes in oil prices and no additional price reductions, the annual inflation rate is expected to enter the target range toward the middle of 2017.
The increase of wages in the economy is expected to support this process. Along with its rate decision, the central bank published its quarterly economic forecasts. Its economists estimated that the key interest rate would stay unchanged through 2016 and gradually start rising from the second quarter of 2017 to end that year at 0.5 percent.
The decision to keep the interest rate for April 2016 unchanged at 0.1 percent is consistent with the Bank of Israel's monetary policy, which is intended to return the inflation rate to within the price stability target of 1–3 percent a year, and to support growth while maintaining financial stability.
In view of developments in the inflation environment, in growth in Israel and in the global economy, in the exchange rate, as well as in monetary policies of major central banks, the Monetary Committee continues to assess that monetary policy will remain accommodative for a considerable time.