Economists expect the Bank of Israel to cut its benchmark lending rate by a quarter point to a record low, according to a survey of economists conducted by the Bloomberg news agency. Six out of eleven economists surveyed estimated that the rate would be reduced to 0.5 percent. The other five said that they expect Bank Governor Stanley Fischer to leave the rate unchanged.
The Central Bank will announce its decision regarding the key rate at 5:30 p.m. Monday.
In the last two weeks, the shekel has strengthened by 5.1 percent against the dollar. Ron Eichel, chief economist at Meitav Securities & Investments, predicted in a report that this “will tip the balance in favor of an additional reduction of 25 basis points.” He added that reduction of the interest rate “will close the rate margin between Israel and the U.S.”
Since early October, Fischer has reduced the base rate seven times – by a total of 3.5 points – to lessen the effect of the global economic downturn. The moves are also seen as a response to an improved inflation picture: the inflation rate was at 3.4 percent in February but is expected to fall to 0.6 percent this year, according to the bank’s survey of economists last week. This number is below the government’s 1 to 3 percent target.
The rate reduction Monday is likely to be the last one for a “very long time” and the rate will probably remain low through the first half of 2010, economist Eichel said.