Barclays Capital believes that the Bank of Israel will keep the interest rate unchanged at its meeting this week, and in fact may begin to warn of inflation risks rather than risks to economic growth.
Barclays points out that although Israel's GDP fell by 3.6% in the first quarter, the economy still outperformed the US and Europe. The investment house adds that the pace of the deterioration is moderating, which, it claims, together with a pick-up in confidence indicators, suggests that Israel is getting closer to the bottom of the cycle. "We believe the deflationary trend in CPI that had worried the Bank of Israel has been allayed, especially with the upcoming hikes in indirect taxes." The result, according to Barclays, is that the Bank of Israel "may turn less dovish" in its comments.
Barclays says that as the Bank of Israel decides how to begin to reverse its current policies, the first shift could be in terms of scaling back foreign currency intervention once an improvement in exports becomes more visible.
Barclays also sees the central bank's local bond purchases program continuing through the summer, "helping to stem the pressures that might otherwise be caused by the government’s refinancing needs for 2009 and the (summer) peak in corporate bond repayments."
Published by Globes [online], Israel business news - www.globes-online.com - on May 24, 2009
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