By Steven Scheer

JERUSALEM, (Reuters) – The Bank of Israel will likely keep its short-term interest rate unchanged for this week. This is the 14th consecutive such decision. However, analysts expect a hawkish tone, which could result in higher rates over time as inflationary pressures increase.

Reuters polled twelve economists to predict that the central bank’s monetary committee (MPC), will hold the benchmark interest rate at an unprecedented low of 0.1% on Monday (4:00 GMT).

Other countries may have experienced an increase in inflation, but Israel is not. This is due to Israel’s strong shekel, which has been at a 26 year high against the dollar, and has kept import prices low. In November, the annual inflation rate was 2.4%. This is well below the official target of 1-3%.

Amir Yaron, Bank of Israel governor, told Reuters last month that there was no urgency to increase interest rates as inflation is under control.

But analysts believe that rising inflation is inevitable given a tightening labour marketplace in which the largest measure of unemployment has dropped to 6.5%.

BofA Securities analysts predict that inflation pressure will become persistent and demand more increases. Rates could be increased starting from the second quarter of 2020 and ending at 1% in 2022.

Following a vote by one of the policymakers for an Oct. 7 rate hike to 0.25%, six rate setting members had decided to keep the benchmark interest rates at 0.1%. Real interest rates for Israel are negative. They were at the same level as those of major economies.

Since the strong economic recovery from COVID-19, large inflows of foreign money into high-tech sectors and a surplus current account, the central bank has largely allowed the shekel to strengthen.

Despite buying $30 billion worth of foreign currency, the shekel appreciated throughout 2021. Yaron said that while the bank may still need to intervene, it will not do so in a pre-announced or fixed amount. This was also the case last year.

According to the Bank’s October estimate, Israel’s economy was projected to expand 7% by 2021. It is also expected to increase 5.5% in 2019.

The bank will release updated macro forecasts at Monday’s decision. Yaron will host his quarterly news conference starting at 4.15pm.