Analysts foresee interest-rate hike

The Bank of Israel will gradually increase the interest rate over the next two years, financial-management firm Merrill Lynch predicted Sunday.

By NADAV SHEMER
February 20, 2011 23:59
1 minute read.
BOI Governer Stanley Fischer.

stanley fischer. (photo credit: Louise Green)

The Bank of Israel will gradually increase the interest rate over the next two years, financial-management firm Merrill Lynch predicted Sunday.

In a report released ahead of the central bank’s Monday meeting to determine the new rate, analyst Jean-Michel Saliba wrote that the interest rate would likely rise to 3.25 percent by the end of the year and to 4% by the end of 2012.

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“Sticky inflation expectations and signs of overheating in the labor market are limiting the Bank of Israel’s room to maneuver,” Saliba wrote.

Most analysts agree that the bank will raise the interest rate by 25 basis points to 2.5% when it convenes Monday morning, after the Central Bureau of Statistics released figures last week showing that gross domestic product had risen unexpectedly by an annualized 7.8% in the fourth quarter of 2010.

Meitav Investment House chief economist Ron Eichel said the strong figures would make it difficult for the bank to justify keeping the interest rate at its current level.

“There is no doubt that the January CPI report, despite the unexpected upward shift, is not especially optimistic for the Bank of Israel. Mainly, we have seen that vendors are raising their prices too easily...[across] a wide range of goods and services,” he said in a report.

Meanwhile, the Bank of Israel’s composite state-of-the economy index for January 2011 increased by 0.4% compared to the previous month, indicating continued growth following a revised December increase of 0.6%.

The January increase came mainly on the back of a 3% month-on-month rise in the services exports index, a 4.2% rise in the consumer-goods imports index and a 3.4% rise in the production inputs index.


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