Capital market sources believe that Governor of the Bank of Israel Prof. Stanley Fischer will keep the interest rate for April unchanged for the third consecutive month. However, there are capital market sources who believe that there is room for an interest rate hike since the inflation expectations are again nearing the ceiling of the government's 1-3% price stability target.
The interest rate for April will be announced on March 28, Sunday evening. The announcement is usually schedule for the last Monday of the month, and at 48 hours before the end of the month. This month it is earlier because Monday of the Passover holiday.
Capital market sources believe that inflation will reach a cumulative 1% over the next three months, after falling by 1% in the first quarter. The fall in the Consumer Price Index (CPI) in January and February has made things easier for Fischer, by lowering inflation expectations for 2010 as a whole. Most of the drop in inflation was due to the housing item, the largest single item of the CPI, accounting for a fifth of it. The situation is changing, however, and the drop in the CPI has actually strengthened assessments that inflation will pick up in the future.
A decision to raise the interest rate will not be easy. Fischer will have to take into account the clear signs that the economic crisis is not yet over, and that the recovery in Israel and other countries is still fragile. Global recovery is very slow, especially in Europe, and growth rates in the US are modest.
Published by Globes [online], Israel business news - www.globes-online.com - on March 21, 2010
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