Knesset passes Governance Law
Barclays expects the Bank of Israel to cut the interest rate to 1.75% during the first quarter of 2013.
Barclays Capital economists have cut its growth forecast for Israel for the fourth quarter of 2012 and first quarter of 2013, as well as its full-year forecast for 2013. The move follows reductions in growth forecasts for Israel by other macroeconomists and the Bank of Israel. In its macroeconomic review today, Barclays predicts that the Israeli economy will grow by 3% in 2013, down from the previous forecast of 3.5% growth. It expects an annualized growth rate of 3% for the fourth quarter of 2012 and 2.9% for the first quarter of 2013.
Barclays expects the Bank of Israel will cut the interest rate by a further 25 basis points to 1.75% during the first quarter of 2013, after a new government is formed and approval of an austerity budget. "Further expenditure cuts of an estimated 1.5% of GDP are needed to reach the 2013 target of 3% of GDP," it says (a budget cut of NIS 14-15 billion).
Barclays predicts that inflation will be 2% in 2013, because of somewhat higher food prices and stable energy prices. It expects the shekel-dollar exchange rate to average NIS 3.75/$ in 2013.
Discount Bank predicts 50-basis point interest rate cut
Discount Bank said today that the economy and jobs market will continue to be weak in the coming months. Predictive indices indicate further weakness, such as the Purchasing Managers Index, which is at a low level, and the Consumer Confidence Index, which despite some improvement, still indicates expectations of weakness.
Another factor in the equation is that the 2013 budget will probably only be passed in late March, or even later. The government will therefore maintain an austere fiscal policy, which will hurt growth, at least through the first quarter of 2013. Afterwards, there will still be a need for spending cuts to keep to the spending rule, but the cuts are already largely included in the growth forecasts of the Bank of Israel and many other economists.
"The interest rate in Israel will continue to be cut by a cumulative 50 basis points (and even more in certain scenarios). It is hard to assess when the interest rate will be cut, and by how much (a surprise in the form of a 50-basis point cut is possible), but the process will continue through the early months of 2013. During 2013, we expect the Bank of Israel to begin raising the interest rate, especially if there is improvement in Israel's growth rate," says Discount Bank.
Published by Globes [online], Israel business news - www.globes-online.com - on December 12, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
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