The Bank of Israel monetary committee, chaired by Governor Stanley Fischer, is expected to keep the interest rate for December unchanged at 2% at tomorrow's meeting, according to most analysts polled by "Bloomberg". Last month, the Bank of Israel unexpectedly cut the interest rate for November by 25 basis points.
Notwithstanding the broad consensus about the interest rate, some analysts believe that there is a low probability (less than 40%) that the Bank of Israel will cut the interest rate for December by another 25 basis points. Two important pieces of data support an interest rate cut: the worsening slowdown, as seen in the national accounts figures published by the Central Bureau of Statistics last week; and the unexpected fall 0.2% in the Consumer Price Index (CPI) for November, belying analysts' expectations of a 0.5% rise.
The national accounts data show that GDP has slowed further to less than 3% a year. The Central Bureau of Statistics also reported a drop in domestic demand, investment, and private consumption per capita. Furthermore, the exports of goods and services fell sharply in the third quarter.
At last month's monetary committee meeting, there was disagreement between two members who opposed the interest rate cut, saying that the interest rate, after the 50 basis point cut earlier in the year suited the economy. They warned that a low interest rate over a long period of time could cause a bubble.
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2012
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