stanley fischer 58.
(photo credit: Louise Green)
Governor of the Bank of Israel Prof. Stanley Fischer’s decision to raise the
interest rate by 50 basis points, to 3 percent for April caught most market
Economists had expected a 25 basis points rise in the
interest rate, but Fischer once again took them by surprise and hiked it to 3%.
The interest rate in the Israeli economy has risen by 100 basis points in the
past three months and by 250 basis points since August 2009.
significance is that mortgages will now be substantially more
Foreign banks are rushing to respond and raise their interest
Goldman Sachs said, “The Bank of Israel will leave the
interest rate unchanged when it makes its next interest rate decision on April
24, but the interest rate will rise to 4.25% by the end of the year, and 5.25%
by the end of 2012.”
JP Morgan’s economists have issued an even more
aggressive forecast, predicting 4.5% interest by the end of the year, and 5.5%
by the end of 2012. Thus JP Morgan has raised its previous prediction by
The reason for the announcement of the sharp rise in the interest
rate yesterday is the hike in inflation and inflationary
Over the 12 months ending February 2011 inflation climbed
to 4.2%, well above the government's 1- 3% target.
The rise in Israel’s
interest rate further widens the interest rate gap between Israel and the US,
and this is likely to increase the flow of capital into the Israeli economy and
strengthen the shekel.
Consequently, Merrill Lynch economists said the
Bank of Israel, “will watch out for the shekel in the next few months possibly
through sporadic intervention and macro-prudential tools.”
interview with Bloomberg, Modi Shafrir, chief economist at Tel Avivbased I.L.S.
Brokers Ltd., said that “the Bank of Israel became much more hawkish.
to its increasing confidence in the strength of the local and the global
economy, it seems like the Bank of Israel intends to focus, in the upcoming
months, mainly on the rising inflationary pressures.”
contributed to this report