By Steven Scheer and Ari Rabinovitch
JERUSALEM, April 16 (Reuters) - The Bank of Israel said on Monday there was a chance of a rate increase this year should inflation heat up, as it left its benchmark interest rate unchanged at 0.1 percent for the 33rd time in a row.
All 10 economists polled by Reuters had forecast no change by the central bank, which is widely expected to leave rates unchanged until at least late 2018 before tightening policy.
But there is debate as to when that will happen. Bond yields and some economists believe inflation will stay below 1 percent for at least another year, meaning a rate increase is a year off.
The central bank is more optimistic and expects a 1.1 percent rate by the end of 2018, according to its quarterly economic estimates issued alongside the rates decision.
Its own economists expect a 15 basis point rate hike to 0.25 percent by year-end and another quarter-point rise to 0.5 percent in 2019 - a forecast that was unchanged from January.
Support for a hike has begun, with one member of the monetary policy committee voting for an increase at the last decision on Feb. 26. The 5-1 vote was the first time it was not unanimous in three years.
"There is of course a lot of uncertainty around the timing of inflation returning to within the target," Flug, whose first term ends in October and it was unclear she would stay on for a second five years, told a news conference.
She pointed to the increased competition in the economy and possible steps by the government to decrease the cost of living as potentially delaying a return of inflation to the target range. "There are increasing signs that the enhancement of competition in the economy has a prolonged effect on inflation," Flug said.
Still, she said there were factors supporting an increase in inflation, primarily the tight labour market that is reflected in an increase in salaries, as well as in higher inflation worldwide.
Inflation held steady at a 0.2 percent rate in March.
The central bank also maintained its 2018 and 2019 economic growth forecasts of 3.4 percent and 3.5 percent, respectively.
Israel's economy grew an annualised 4.1 percent in the fourth quarter and 3.3 percent in all of 2017.
Flug noted that the bank would continue a decade-long policy of intervening in the foreign exchange market whenever it deems the shekel's appreciation is not due to economic fundamentals.