Top capital market economists are split over tomorrow's interest rate decision by the Bank of Israel Monetary Committee. According to a "Bloomberg" poll, twelve out of 21 analysts believe that the Bank of Israel will keep the interest rate for June unchanged at 1.5%, and nine analysts believe that it will cut the interest rate by 25 basis points to 1.25%.
On May 12-13, the Monetary Committee held a special discussion, after which it cut the interest rate to 1.5% and launched a foreign currency purchase program to offset the effect of natural gas production on the exchange rate. Outgoing Governor of the Bank of Israel Prof. Stanley Fischer cast the deciding vote in favor of the 25 basis point interest rate cut, after the committee was evenly split on a 25 basis point cut and a 50 basis point cut.
Since the interest rate came into effect, the shekel has weakened 3.1% against the basket of currencies.
"It is doubtful if this interest rate is enough for the Bank of Israel, nor is it certain that the weakening of the shekel will continue without another interest rate cut," says Psagot Investment House Ltd. macroeconomic manager Ori Greenfeld. He says that the market expects another interest rate cut. "If the shekel again strengthens, the Bank of Israel not only lost monetary ammunition mid-month, it mainly lost the momentum and the surprise factor in the foreign currency market, so that to influence the exchange rate in the future, it may have to make a bigger interest rate cut."
Published by Globes [online], Israel business news - www.globes-online.com - on May 26, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013