Banks: Prime rate increase of 0.7-1.0% necessary.
Inflation rate for `96: 11-12.5%.
The Governor of Bank of Israel Dr. Ya'akov Frenkel is
expected to announce his decision to raise the prime
rate due to the high Consumer Price Index rise for the
month of April of 1.7% and the continued increase in the
amount of money in the economy. Apparently this will be
a relatively moderate increase in the prime rate of
about 0.5%, after the previous month's increase of
0.8%.
Even after the increase, the prime rate will be below
the record 17% it reached near the end of 1994. The
exact rate of increase of the prime rate has not yet
been determined and discussions on the monetary plan
continue at this point.
The increase in the prime rate was explained by the
accelerated inflation at an annual rate of 14% and the
decrease in actual interest. According to recent
estimates, the 1996 inflation rate will reach 11-12.5%
and most experts in the Ministry of Finance and Bank of
Israel estimate that additional prime rate increases
will be necessary to reach the original inflation goal
of 8-10% and in order to insure lower inflation in
1997.
According to various indicators, a prime rate
increase of 0.7-1.0% is necessary, according to concerns
in the major banks today. The Governor of the Bank of
Israel Dr. Ya'akov Frenkel is expected to publish his
announcement of monetary policy for the month of
June