The Bank of Israel will likely raise the interest rate in the fourth quarter of 2014, marking a U-turn in its policy, says Bank Leumi in its weekly macroeconomic survey today.
"One of six members of the Monetary Committee voted in favor of raising the interest rate to 1%, and the rest supported the decision to keep the interest rate unchanged," said Bank Leumi about the last interest rate meeting in which the first cracks in the committee appeared. "According to the committee minutes, there were disagreements about developments in real economic activity in Israel, and apparently over the question whether current trends in the economy still justify keeping an interest rate that reflects a very expansionist monetary policy (a real negative interest rate), and which supports property price inflation."
Bank Leumi believes that the support of the Monetary Committee member for raising the interest rate "is an important milestone in the Bank of Israel's interest rate policy (even though it is a minority opinion), and apparently reflects the end of last cycle of interest rate cuts, which began in late 2011, and prepares the ground for a change in direction in interest rate policy."
The Bank of Israel's Research Department expects the interest rate will rise in early 2015, but Bank Leumi expects it to happen sooner.
Published by Globes [online], Israel business news - www.globes-online.com - on May 15, 2014
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