BOI Stays Same After Fed Rate Rise

(Reuters) -

Israel’s central bank has no plans to shift policy any time soon in response to last week’s rise in U.S. interest rates, its Governor Karnit Flug said on Monday.

“For now, it doesn’t look like that will change the trend [in Israel] dramatically,” Flug told a session of the Knesset Finance Committee.

The central bank would resort to negative interest rates, she added, reiterating previous comments.

Policymakers have left the bank’s benchmark interest rate at a record low of 0.1 percent for nine straight months, citing a rebound in economic growth and blaming persistent deflation on lower commodity prices.

The bank has said policy will remain accommodative for an extended period.

Flug noted that while annual inflation was -0.9 percent in December, expectations were for a rise to within the official target of 1-3 percent.

At the same time, Flug said, weaker than expected economic growth in 2015 was largely due to a strike at Israel Chemicals, a fall in tourism and an appreciation of the shekel, which harmed exports, along with slow global trade growth.

Growth was an annualized 2.5 percent in the third quarter after a 0.2 percent rise in the prior three months.

In its first rate hike since 2006, the U.S. Federal Reserve raised the range of its benchmark interest rate by a quarter of a percentage point last Wednesday and indicated that further hikes would be gradual.

United Torah Judaism MK Rabbi Moshe Gafni, chairman of the Finance Committee, called on Flug to do more to help to lower housing prices that have doubled since 2007, making it very difficult for young couples to buy a home.

Much of Israel’s housing boom is due to very low mortgage rates, fueled by the near-zero base rates.