"Despite the sharp rise in the Consumer Price Index (CPI) in April the Bank of Israel should not raise the interest rate at the end of the month, because of the economic and financial crisis in Europe," says Excellence Investments Ltd. (TASE: EXCE) chief economist Shlomo Maoz.
Maoz says that the interest rate should be kept unchanged for the following reasons: another rate hike will put more pressure on the appreciation of the shekel, which has already risen 6% against the basket of currencies, double the rise in productivity this year; another rate hike will hurt exports to Israel's largest market, Europe, which will already become a tougher market due to greater competition; and inflation will probably be within the target range, and will not rise because the CPI in the coming months will be low, mainly due to lower prices for oil and commodities.
In addition, central banks around the world have no plans to raise their interest rates.
The Bank of Israel will, however, have to contend with rising home prices, which are again driving the CPI upwards. Maoz said that, in his opinion, the Bank of Israel should find administrative measures to prevent cheap money, such as raising the liquidity rates for mortgages.
Maoz predicts that the CPI will rise by 0.2% in June. "I expect the CPI to rise by 3.3% over the next 12 months from the April baseline. The CPI will rise by 2.4% in 2010, compared with the previous forecast of 2.5%."
Published by Globes [online], Israel business news - www.globes-online.com - on May 17, 2010
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