BOI doesn't rule out interest-rate cut

Knesset Finance Committee vows to compel government to compensate struggling manufacturers.

stanley fischer 88 (photo credit:)
stanley fischer 88
(photo credit: )
The Bank of Israel isn't ruling out a decision to cut the interest rate next month in response to the low value of the dollar, its spokesperson, Dr. Yossi Sa'adon, told The Jerusalem Post Wednesday. "If we're happy with the level of inflation, there would be no problem in decreasing the interest rate," he said, adding, "We never said we wouldn't lower the interest rate, we just said we wouldn't touch it before February 25." Sa'adon stressed that no one at the Bank of Israel, "including the governor [Stanley Fischer], knows at this stage what decision will be taken next month on interest rates." The comments came following a retreat by Manufacturers Association of Israel president Shraga Brosh and Histadrut chairman Ofer Eini from an earlier demand to amend the Bank of Israel Law to change the composition of a monetary committee that makes decisions on interest rates levels at the central bank. Brosh and Eini have consistently called for a cut in the interest rate to alleviate pressure on manufacturers, exporters and workers caused by the tumbling value of the dollar, a call that has, up until now, been rebuffed by the Bank of Israel. The Manufacturers Association of Israel estimates that $2.6 billion was lost by local industries in 2007. During a meeting of the Knesset Finance Committee on Wednesday, Brosh said he would acquiesce to a request by committee chairman Stas Meseznikov (Israel Beiteinu) to back away from the initiative to change the law, adding that he "had no intention of harming the Bank of Israel's authority." The Bank of Israel did, however, have to "deal" with the movements of speculative capital, which harmed manufacturing, Brosh said. His comments were backed by Israel Export and International Cooperation Institute chairman David Artzi, who rejected the claim that the shekel had strengthened in recent months solely due to the dollar's influence. According to research carried out by the institute, 71 percent of currency trading was made up of speculative activities aimed at short-term profits, he said, adding that international financial bodies such as hedge funds, whose scope of operations reaches hundreds of billions of shekels, were the main elements behind the trading. During its meeting, the Finance Committee adopted Brosh's call for the government to apply the recommendations of the Artzi Commission, appointed by Industry, Trade and Labor Minister Eli Yishai, which call for the setting up of a state compensation fund for small- and medium-sized manufacturers, and an increase of marketing of Israeli exports to foreign markets. The Finance Committee said in a statement that it will "monitor the government over the coming two weeks, during which time, if the government fails to meet over the issue, the committee will initiate "parliamentary measures." "Unfortunately, there is no public outcry and no one is waking up," Eini said. "We succeeded in getting a real discussion within the Finance Committee and the government following the dollar's crash," he said, but added that he was highly disturbed by the prospect of "30,000 workers being fired, which is why I'm sounding the alarm." During the meeting, MK Shelly Yacimovich (Labor) warned that Israeli society was facing "a danger in the form of deterioration in the economy. This is a kind of emergency situation." MK Avishay Braverman (Labor) said he supported lowering the interest rate. "In Israel, an increase in inflation isn't a great disaster," he said. "A collapse of the periphery is a disaster."