JERUSALEM: Bank of Israel Governor Amir Yaron on Monday held open the prospect of another interest rate interest later this year as long as inflation continued to rise and economic growth remained solid.
But speaking to reporters after the central bank left its benchmark interest rate at 0.25pc for a fifth straight decision, Yaron cautioned that a host of factors -- including other central bank decisions -- could delay a hike.
"We are of course influenced by what happens in the world. Yet in Israel, for now, the route is a bit different. So we do not need to be one-to-one to what is happening in the big blocs," he said, referring to the Federal Reserve and European Central Bank.
In an updated forecast, the Bank of Israel's own economists reiterated a projection of a quarter-point increase to 0.5pc in the third quarter and two more hikes in 2020, to bring the rate to 1pc by the end of next year, a contrast to talk of easing policy in the United States and Europe.
Much, he said, could change by the next decision on Aug. 28 in assessments of future inflation, the risk of a deterioration in the global economy, decisions by the Fed and ECB and a shekel appreciation.
"All of these, if they materialize, could lead to an increase in the interest rate occurring at a later time" than in the staff forecast, Yaron said.
The bank's staff made only minor adjustments to their macro forecasts, with Israel's economy expected to grow 3.1pc this year, versus a prior 3.2pc prediction. It left unchanged a 3.5pc estimate for 2020 and foresaw inflation rates of 1.6pc in both 2019 and 2020.
When asked whether the central bank was prepared in case of a sudden turnaround stemming from weaker global growth and/or tighter fiscal steps to rein in the budget deficit, Yaron said the bank had tools but it was not currently looking in the direction of zero interest rates or quantitative easing.
Israel's budget deficit reached an annual 3.9pc of GDP in June, well above target. Yaron said the government must tackle the deficit after the Sept. 17 election through raising revenue and reducing spending.
All 12 economists polled by Reuters had forecast rates would remain unchanged on Monday. A surprise hike in November was followed by no change in January, February, April and May.
"The risks to the global economy remain significant, and the forecasts for world trade and growth in most regions were revised downward," the central bank said in a statement.
"The expectation in global financial markets is that major central banks will renew the process of monetary accommodation."
It noted that the path of Israeli interest rates will be gradual and cautious, in a manner that supports moving inflation back to around 2pc -- the middle of the government's 1pc-3pc target. Annual inflation edged up to a 1.5pc rate in May from 1.3pc in April.
In keeping rates steady, the central bank noted that the economy has grown around its potential growth rate for several quarters, and the labour market remains tight.
It also noted the shekel in the past year has strengthened 4.3pc versus a basket of currencies of Israel's main trading partners.
"If the appreciation resumes, it is expected to delay the continued increase of the inflation rate toward the midpoint of the target," it said.
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