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Israel central bank keeps key rate unchanged, pushes back forecast for increase

The Bank of Israel maintained its benchmark interest rate at 0.1% and pushed back its forecast for a rate hike, citing a projected temporary decline in inflation to below the central bank's target range.

Israel's annual inflation rate came in at 1.2% in August, easing from 1.4% in July and still within the central bank's target range of 1% to 3%.

"In the coming months, there is likely to be a transitory decline in the inflation rate to below the lower bound of the target range," the bank said in a statement.

The bank's research department is now projecting the inflation rate to be at 0.8% at the end of 2018, down from a previous forecast of 1.2%, before rising to 1.5% at the end of next year.

The bank is also expecting its interest rate to increase to 0.25% in the first quarter of 2019, pushing back its prior forecast of a rate hike in the fourth quarter of 2018.

The interest rate is also forecast to increase to 0.5% in the third quarter of 2019, the bank said.

Bank of Israel Governor Karnit Flug said "the inflation environment is still not yet sufficiently entrenched" within the target range and that a monetary policy decision "will be data dependent, and will not be date dependent—it will not be set in advance for a specific time."

Israel's economy is expected to grow by 3.7% in 2018, unchanged from the bank's earlier estimate, and by 3.6% in 2019, slightly higher than the previous forecast.