"We believe that the steady appreciation of the shekel, which has resulted in a shekel-dollar exchange rate last seen in early 2011, could definitely cause the Bank of Israel to cut the interest rate, which would make activity by carry trade players less worthwhile. We even think that because the low inflation rate is not currently a factor in the interest rate considerations, it would be better if the Bank of Israel were to cut the interest rate rather than intervene in the foreign currency market. However, this should be done after very carefully examining developments in the mortgage market," said Meitav Investment House Ltd. chief strategist Ron Eichel in his weekly review today.
Eichel believes that, in view of the problematic foreign trade figures, there is a 40% chance that the Bank of Israel will cut the interest rate for March by 25 basis points to 1.5%, or a 60% chance that it will cut the interest rate for April.
As for the bond market, Meitav says that, for the third consecutive week, government unlinked shekel bonds have had a higher yield than government Consumer Price Index (CPI) linked bonds. "We believe that this trend is not yet over," says Eichel.
The drop in US T-bills, due to positive economic development and investors' desire to quit safe assets, is largely responsible for the downward trend in some long-term government bonds. Meitav therefore continues to prefer medium duration bonds, with a tendency to go for longer duration in shekel bonds, because of the drop in prices, and shorter duration in CPI-linked bonds. In view of inflation expectations, there is a preference for unlinked shekel instruments over CPI-linked instruments across all durations, especially long-term bonds.
Published by Globes [online], Israel business news - www.globes-online.com - on February 17, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013