"There is a strong probability of an interest rate cut for January," says IBI Investment House Ltd. chief economist Rafi Gozlan, adding that Israel's economic slowdown will worsen in the first quarter of 2013. His analysis comes after the Central Bureau of Statistics unexpectedly reported on Friday that the Consumer Price Index (CPI) fell by 0.5% in November.
Gozlan says that it is more likely that the Bank of Israel will cut the interest rate for January to 1.75% than to keep it unchanged at 2%. He believes that the Bank of Israel will find it difficult to ignore the weakening of economic activity and the drop in inflation in recent months as demand declines.
"The rapid appreciation of the shekel lately is another factor supporting an interest rate cut. The main dilemma is the unwanted effect on the housing market, and if there is no cooling of prices and demand over the next couple of months, the Bank of Israel will take more macro-prudential measures," says Gozlan.
Gozlan predicts an inflation rate of 1.8% over the next 12 months, mainly due to the slowing growth rate and rise in output gap, low global inflation, and the weakness in the labor market.
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012