Governor of the Bank of Israel Stanley Fischer has been bolstered in his stance on monetary policy. The day after he called a snap press conference to fend off pressures to cut interest rates by 0.5%, politicians have been disassociating themselves from the bill proposed by Manufacturers Association president Shraga Brosh and Histadrut (General Federation of Labor in Israel) chairman Ofer Eini designed to weaken the governor of the Bank of Israel's grip on interest rates.
Prime Minister Ehud Olmert and Minister of Finance Ronnie Bar-On called Fischer to express support. Eini also called, to explain his move. "I don't intend to sign up any member of Knesset or to do any lobbying on behalf of the bill," he told Fischer.
Fischer also received calls from some members of Knesset, though others are waiting to see who wins.
Brosh called senior Bank of Israel officials at 6:30 pm on Saturday, before news of the bill was made public in the media. "I want you to hear it from me and not through the media," he said to Fischer.
The smoke of battle shrouding the interest rate decision for March has not cleared. At present, there is a 50% chance of a 25 basis point cut in the Bank of Israel's key rate, to 4%.
Neither of the two leading departments at the Bank of Israel, the Research department and the Monetary Department, sees an interest rate hike in the coming months. According to the Research Department's model, at a shekel-dollar exchange rate of NIS 3.7/$, inflation in 2008 will be 2.2%, even if the interest rate remains at its current level of 4.25%. According to the Monetary Department's model, the interest rate can be cut to 3.75%, assuming that the shekel-dollar exchange rate averages NIS 3.77/$ in the final quarter of the year. In this scenario, inflation for 2008 will be just 1.6%.
Published by Globes [online], Israel business news - www.globes.co.il - on February 11, 2008
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