Sokoler weighs interest rate options

While there's room for another 0.2%, no change has its advantages.

20 January 05 13:13, Zeev Klein

Capital market inflation expectations are now only 1% for 2005, at the bottom of the government's inflation target. Initial indications suggest that inflation expectations for the next 12 months have been rising slowly during the past week, compared with the first half of January, to 1.3-1.7%, still near the lower limit of the inflation target.

Another small interest rate cut of 0.2% will therefore not jeopardize price stability. On the other hand, keeping the interest rate unchanged also has some important advantages. Acting Governor of the Bank of Israel Dr. Meir Sokoler opened monetary policy discussions yesterday, in advance of his first interest rate decision next Monday.

Sokoler is considered an authority on interest rate matters, so a 0.2% cut to 3.5%, the lowest interest rate in Israeli history, cannot be ruled out.

The capital market predicts that the Bank of Israel interest rate will reach 4.3% only in August 2005. Earlier forecasts had predicted interest rate hikes beginning in January. An unnecessary interest rate cut is liable to force the Bank of Israel to make an interest rate hike sooner than the market dictates at the moment.

Published by Globes [online], Israel business news - www.globes.co.il - on January 20, 2005