"Although in our basic scenario, the Bank of Israel will keep the interest rate stable through the end of 2014 (with the possibility of an interest rate hike in December), the latest economic data increase the chances of an interest rate cut in the coming months (with a probability of 30%)," says Leader Capital Markets analyst Yonatan Katz in his weekly review.
The reasons are signs of weakness in economic activity, the lower than expected inflation, continuing pressure to strengthen the shekel, and weak jobs figures in the US (although this may have been due to the severe weather). Nonetheless, the makam (short-term deposits) market is "quite safe" in a stable interest rate scenario.
Leader adds that no interest rate hike is expected in Israel before real expectations of an interest rate hike in the US, which could occur in early 2015, if there is rapid growth in 2014 and a rise in the inflationary environment toward the end of the year.
Leader expects a cumulative drop in the CPI of 0.5% in January-February. "This assessment is not fully priced in by the bond market, and gives preference to short-term unlinked instruments over CPI-linked instruments," it says.
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2014
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