The prevailing view among economists is that Governor of the Bank of Israel Prof. Stanley Fischer will raise the interest rate for April by 0.25% to 2.75% on Monday. A minority opinion predicts a 0.5% rate hike because of Israel's high inflation.
Capital market sources believe that Fischer will continue his monetary tightening, because of inflationary development. Inflation for the preceding 12 months reached 4.2% in March, well above the government's 1-3% price stability target range. More worrying, 12-month inflation forecasts rose to 3.8% this month.
The economy is also growing rapidly, the unemployment rate is falling, and exports are strong.
The only factor that might cause Fischer to refrain from an interest rate hike is the shekel's sharp appreciation against the dollar. The shekel-dollar exchange rate fell to a two-year low of NIS 3.52/$ last week. However, the deterioration on the security situation is counteracting the shekel's strength, making an interest rate hike possible.
Published by Globes [online], Israel business news - www.globes-online.com - on March 27, 2011
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