14 of 18 analysts in a "Bloomberg" survey believe that Governor of the Bank of Israel Prof. Stanley Fischer will keep the interest rate unchanged at 1.5% for June at tomorrow's interest rate decision. The other four analysts - from Israel Discount Bank, Psagot Investment House Ltd., Credit Suisse, and Alumot Investment House - believe that he will raise the interest rate by 25 basis points to 1.75%.
Capital market sources believe that the debt crisis in Europe will compel Fischer to keep Israel's interest rate unchanged for the second consecutive month, because of the plunge in the euro against other currencies, including the shekel, which hurts Israel's exports and economic growth.
20% of Israeli exports go to Europe. The shekel has strengthened 4.1% against the euro since the beginning of April, and 12% since the beginning of the year.
Foreign banks are revising downward their interest rate forecasts for Israel for the coming year. Both Goldman Sachs and Morgan Stanley cut their forecasts early this year. Merrill Lynch has followed, and now predicts an interest rate of 2.5% at the end of the year, down from 3% in its previous forecast.
Merrill Lynch says that the interest rate will not be raised this month. However, the current rate of 1.5% is not justified in view of the GDP growth forecast of 3.5-3.7% for 2010.
Published by Globes [online], Israel business news - www.globes-online.com - on May 23, 2010
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