IBI Investment House Ltd. predicts that Governor of the Bank of Israel Prof. Stanley Fischer will keep the interest rate for March unchanged at 1.25% in tonight's rate decision. It also believes that Fischer will not change the interest over the coming months, but will begin interest rate hikes later in the year, to reach 2.5% by the end of 2010.
IBI believes that the Bank of Israel will review inflation risks as well as risks to the consolidation of global economic growth before making any interest rate decision, because a higher interest incurs the risk that the shekel will appreciate against other currencies.
In the wake of the 0.7% drop in the Consumer Price Index (CPI) in January, IBI predicts that the CPI will fall by another 0.4% in February, due to lower prices for fresh fruits and vegetables and the warm weather during the month. The ongoing drop in the housing item will also lower the CPI. IBI said that, in the wake of the recent drops in the CPI, it has cancelled the fixed premium in its model, which reflected upward price pressures in the market for a long time.
IBI predicts that inflation will reach 1.6% in 2010, below the midpoint of the government's 1-3% inflation target.
IBI also notes that, on Wednesday, the Ministry of Finance will announce its capital plans for March-May. IBI predicts that the Government Debt Management unit will seek to raise NIS 10 billion. This estimate is based on IBI's forecast that the deficit will be less than the ministry's projected deficit ceiling for 2010, proceeds from privatization, the government's use of proceeds from issues of reserves and foreign bond issues, and the ministry's estimated capital needs for the coming months.
Published by Globes [online], Israel business news - www.globes-online.com - on February 22, 2010
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