Bank of Israel Concludes Easing Cycle, Holds Interest Rate Steady

YERUSHALAYIM (Bloomberg) -

Israel’s central bank has reached the end of its easing cycle after cutting the key lending rate 10 times since 2011, said analysts at banks including Barclays Plc (BARC) and Morgan Stanley.

Policy makers, led by Governor Karnit Flug, kept the benchmark lending rate at 0.75 percent, the lowest since November 2009, in their monthly decision on Monday. All 24 economists in a Bloomberg survey forecast the decision.

Signs the domestic and global economies are improving, along with concerns that further cuts may fuel home prices without doing much to weaken the shekel suggest the bank’s next move will be to tighten policy, said Alex Zabezhinsky, chief economist at Tel Aviv-based Meitav DS Investment House Ltd.

“They’re all finished,” agreed Daniel Hewitt, a senior emerging market economist at Barclays in London. “Further cuts probably won’t help the currency very much. And growth isn’t doing badly.”

Israel’s economic growth accelerated to 3.2 percent in the fourth quarter after slumping to 1.8 percent in the previous three months, the lowest in more than four years. Unemployment declined to 5.8 percent in February, from as high as 7.1 percent in 2012.

That’s fueling bets the central bank won’t take its key rate any lower. Israel’s one-year interest rate swaps, an indicator for interest rates over the period, have climbed more than 7.5 basis points since March 19 to 0.70.

Also helping policy makers stand pat is the shekel. The currency is little changed this year after climbing 7.5 percent against the dollar in 2013, the most of 31 major currencies tracked by Bloomberg, stoked in part by discoveries of natural gas reserves off Israel’s Mediterranean coast.