Economists expect BoI to raise interest rate to 3.25%

Inflation due to inflationary considerations, rising housing prices, high economic growth and the recent recovery of the dollar against the shekel.

By NADAV SHEMER
May 19, 2011 23:31
2 minute read.
The Jerusalem Post

Stanley Fischer 311. (photo credit: Bloomberg)

Analysts are forecasting that Bank of Israel Governor Stanley Fischer will raise the benchmark interest rate by a quarter percentage point to 3.25 percent on Monday, even though April inflation figures failed to meet expectations.

Meitav Investment House chief economist Ron Eichel said the central bank would raise the rate after factoring in inflationary considerations, rising housing prices, high economic growth and the recent recovery of the dollar against the shekel.

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“Inflation in the last 12 months was higher than the upper limit of the inflationary target and stands at 4 percent, despite the fact that April’s consumer-price index was lower than market expectations,” he said. The relevant indicators in the real-estate market show that housing prices will continue to rise, he added.

The CPI rose just 0.6% last month, far less than the forecasts of 0.8%-0.9%, the Central Bureau of Statistics reported this week. Inflation has risen by 1.3% so far this year, and the annual rate of 4% still exceeds the government’s target range of 1%-3%.

USG Capital analysts Eli Ben- David and Shai Zakhaim also believe Fischer will raise the interest rate.

“The dollar has recovered impressively, but in our estimates there will be no escape from another interest-rate rise of 0.25% at the end of the month, to a new rate of 3.25%, to keep up with the rate of inflation,” they wrote in a report.

Ben-David and Zakhaim also predicted that the dollar would return to its downward trend against the shekel after it fell back below the NIS 3.50 threshold early Thursday.

They forecast that the dollar exchange rate would fall to NIS 3.40 within three months and hit NIS 3.30 within six months.

Bloomberg reported Thursday that 10 out of 19 economists it surveyed had predicted a 0.25% interest- rate rise, while the remaining nine said Fischer would elect to leave the rate steady for the second consecutive month.

Fischer has gradually increased the rate from its record low of 0.5% in August 2009, as the economy has recovered rapidly from the global financial crisis.


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