Analysts are unanimous: 24 of 24 analysts polled by "Bloomberg" say the Bank of Israel will keep the interest rate unchanged at 2.5% for March. The Bank of Israel will announce the interest rate decision tomorrow evening. Last month, the Bank of Israel cut the interest rate by 25 basis points - the fourth rate cut in the preceding 12 months.
Most macroeconomic data needed for the interest rate decision support keeping the interest rate unchanged. The Consumer Price Index (CPI) for January was unexpectedly unchanged, belying analysts' expectations that it would fall; the housing item in the CPI (rent) resumed its climb, after falling for several months; and, most of all, 12-month inflation expectations rose to 2.5%, up from 1.7% in October 2011, which should worry the Bank of Israel.
Global macroeconomic data also suggest that the Bank of Israel should keep the interest rate unchanged. The second, €130 billion, Greek bailout package is finally flowing, boosting markets; the European Central Bank liquidity program is succeeding and is about to be followed by a second program; and most US figures are positive.
Domestic macroeconomic figures are mixed. The national accounts for the fourth quarter of 2011 point to a decline in Israel's two main growth engines - exports and private consumption - and investment is screeching to a halt, after a steady increase over several quarters.
In addition, as it warned in the "Recent Economic Developments: SeptemberDecember 2011", published earlier this month, Israel's fiscal picture is deeply worrying the Bank of Israel, due to heavy overspending and overshooting of the deficit target. The fiscal issues will, however, only affect monetary policy in the long term, supporting interest rate cuts. On the other hand good manufacturing and sales and services proceeds support keeping the interest rate unchanged.
Published by Globes [online], Israel business news - www.globes-online.com - on February 26, 2012
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