Yesterday, the Central Bureau of Statistics reported that the Consumer Price Index (CPI) rose 0.1% in November, below market forecasts of 0.2-0.3%. The figure brought inflation over the past 12 months to 2.3%.
Citi analyst David Lubin believes that while this was the first month since July that the year-on-year inflation rate has fallen, mainly due to benign housing inflation as well as lower fruit and vegetable inflation, the Bank of Israel will still raise the interest rate at the end of this month to 2.25%.
Lubin realizes that November's figures "may help encourage those who believe that the Bank of Israel will fail to hike its policy rate on 27 December." The argument against a hike this month has been growing among some observers due to the strength of the shekel in recent weeks.
However, the analyst still sees the Bank of Israel raising the interest rate to 2.25% this month, and continuing the rate hikes in 2011, up to an interest rate of around 3%. Lubin says, "The Bank of Israel, in our view, is committed to a long-term strategy of policy normalization, which almost requires that it sometimes hikes rates in months when the data seem soft. And in general there remain good reasons for the Bank to be vigilant: the labor market is tight, inflation expectations are at the top end of its 1-3% target range, and real interest rates remain negative in an economy with no output gap."
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010