Analysts split over today’s rate decision

Only some predict Fischer will raise rate by 25 points, but all rule out 50-point hike.

Stanley Fischer 311 (photo credit: Bloomberg)
Stanley Fischer 311
(photo credit: Bloomberg)
Analysts are split over whether the Bank of Israel will raise the interest rate for June on Monday.
A poll of 20 analysts by Bloomberg found that eleven analysts believe that the Bank of Israel will raise the interest rate by 25 basis points to 3.25 percent, while nine believe that it won’t. No analyst expects a 50-basis point interest rate hike.
It has been a long time since analysts have been so divided over a pending interest rate decision. Governor of the Bank of Israel Prof. Stanley Fischer has kept the interest rate unchanged for two months, after raising it by 50 basis points in February to 3%. The rate hike targeted inflation and lower inflation expectations, both of which are well above the government's 1-3% target, as well as to fight the real estate bubble.
However, February’s interest rate hike contributed to the appreciation of the shekel against the dollar. The shekel-dollar exchange rate fell from NIS 3.60/$ on the eve of the decision to below NIS 3.40/$, before partly rebounding toward NIS 3.50/$.
The reasons for the analysts’ disagreement about an interest rate hike, include the 0.6% rise in the Consumer Price Index (CPI) in April, below analysts’ forecasts of a rise of 0.8-0.9%, and the 4.7% annualized growth of GDP in the first quarter, which was also below forecasts of 5.1% growth, and well below the annualized growth rate of 7.8% in the fourth quarter of 2010.
On the other hand, inflation for the previous 12 months is now 4.2%, and some analysts predict that it will rise to 4.5%, while others expect it to fall to 4%. 12-month inflation expectations have fallen toward 3%.