Bank of Israel Governor Stanley Fischer is scheduled to announce May’s interest rates at 2 P.M. today, a day early due to the Passover holiday. Analysts believe he will leave them unchanged at 3%.
Fischer raised rates three months in a row, and last month he shocked the market with a 0.5% increase. This means interest rates have increased 1% this year.
Today’s decision is most likely one of the last interest-rate decisions Fischer will make alone. The new Bank of Israel Law states that rates will be set by a new six-person monetary-policy committee, which will include the governor. Fischer had pushed for the law.
Analysts believe that this month Fischer will probably sit back and keep tracking the effects of last month’s increase, which made credit more expensive, including mortgages.
In addition, Israel’s relatively high interest rates compared with those of other developed nations have created appreciatory pressure on the shekel, which has gained strength against other currencies, namely the dollar. The dollar fell below NIS 3.4 on Thursday and is currently at NIS 3.405.
A strong shekel is bad news for Israeli exporters, whose customers pay in foreign currencies.
This trend is likely to intensify if Fischer raises rates again; analysts cite it as another reason he’s likely to leave May rates unchanged.
But Israel has also been seeing inflation, so analysts say there will be another interest-rate increase soon enough − if not in May, then perhaps in June.
By law, the central bank’s first responsibility is to maintain price stability − to keep inflation within the 1%-3% range set by the government.
Between December and March, prices increased at a 5.7% annualized pace, the Central Bureau of Statistics reported − well beyond the stability range. For that reason, Fischer may yet surprise analysts again with another rate increase.
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