Israel will be one of the countries to join the club of economies with negative interest rates this year, according to Citi analysts led by Ebrahim Rahbari. The analysts compiled a list of central banks that will shortly follow the central banks of Sweden and Japan in adopting negative rates.
According to the report, there is a high probability that the Bank of Israel will adopt a negative interest rate later this year. More precisely, the analysts see the Bank of Israel Monetary Committee, chaired by Governor of the Bank of Israel Karnit Flug, deciding to reduce the bank's rate from 0.1% to -0.1% within three months. The Citi report notes that the Israeli economy has been suffering from deflation since 2014, and that the Consumer Price Index fell by 0.1% in December last year. The report says that the Bank of Israel's patience with an annual inflation rate below the 1-3% target range will run out, and that it will announce a policy of negative interest combined with more aggressive intervention in the foreign currency market.
In its most recent interest rate decision, the Bank of Israel made the vague statement that it would "examine the need for the use of various tools in order to achieve its goals." The Bank of Israel's next interest rate decision, for March, is due on February 22.
Citi's report appeared a day after US Federal Reserve chair Janet Yellen said in her semi-annual testimony in Congress that she did not rule out using the negative interest rate tool. Earlier this month, the central bank of Japan reduced its rate to -0.1%.
Besides Israel, Citi estimates that there is a high probability that other central banks, such as in the Czech Republic, Norway and Canada will reduce their interest rates to below zero this year.
Published by Globes [online], Israel business news - www.globes-online.com - on February 14, 2016
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