16 of 19 analysts polled by "Bloomberg" predict that the Bank of Israel will keep the interest rate for September 2012 unchanged at 2.25%. The Bank of Israel kept the interest rate for August unchanged, and it warned that the lack of certainty about how the government intended to meet the deficit target is liable to erode the government and Ministry of Finance's fiscal credibility.
The analysts believe that the Bank of Israel's Monetary Committee will prefer to continue sitting on the fence this month, and wait for international developments and clarifications about Israel's fiscal situation (following the decision to raise the deficit target and possible tax hikes), despite domestic data which indicate a higher risk of recession and a significant worsening of the debt crisis in Europe in recent weeks.
The analysts believe that the Bank of Israel will keep the interest rate unchanged despite the worsening economic environment and the 0.1% rise in the Consumer Price Index (CPI) in July, which resulted in an inflation rate of 1.4% over the preceding 12 months, below the midpoint of the government's 1-3% inflation target. This figure gives an opening for the Monetary Committee to make more interest rate cuts, in line with analysts' assessments.
"So long as Israel grows at a rate of 3% (around its potential growth rate) no we expect no material change in the interest rate," says Leader Capital Markets analyst Yonatan Katz. "Governor of the Bank of Israel Prof. Stanley Fischer may cut the interest rate at the end of September in line with actions by the Fed, but the bond market has already priced in another interest rate cut."
40% of Israel's GDP comes from exports, mostly to the US and Europe, and developments by these two economies will have a strong effect on the Israeli economy. This week, investors are waiting for macroeconomic announcements, including the US Federal Reserve Board's Beige Book and second quarter growth estimates for the US economy, as well as Federal Reserve Board Chairman Ben S. Bernanke's speech at the upcoming Fed's annual meeting at Jackson Hole. Hope is also growing that the European Central Bank will buy sovereign bonds during September or later.
Published by Globes [online], Israel business news - www.globes-online.com - on August 26, 2012
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