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A week ago I came across two businessmen who were among those that had urged the governor of the Bank of Israel to cut the interest rates sharply and pronto. And when David Klein finally cut the rate in December 2001 by 2 whole percentage points, they were among those saying it was too late, but better late than never. As soon as they saw me, they pounced on me crying, "What's up with this Klein? He has to act fast and raise the interest tonight in order to stop inflation." "Hold on," I said, "Weren't you all for his cutting the interest rate quickly, sharply and elegantly?" They stared at me with daggers and went on their way.

Fortunately Klein is not known as a fast draw, because 10 days have passed and the picture seems a little less dramatic. Since the beginning of the 2002, the dollar has appreciated 10 percent, and inflation has increased about 5 percent. This is a high rate of price rises but don't forget that imports constitute about 50 percent of total GDP. In 2001, the shekel also depreciated 10 percent but prices rose by only 1.4 percent which teaches us that part of the depreciation was absorbed by traders and industrialists.

So the thing is not to get too excited by the headlines claiming inflation is heading for 8 percent because inflation forecasts are much lower at around 4 percent for the next 12 months. True, this is high, and requires attention by the governor - but the measured touch, and nothing hysterical.

Now let's throw in the fact that the Emergency Economic Plan was passed this week in Knesset (first reading only) and there is every chance that government expenditure will be cut, public sector wages will be frozen, and NII allowances will come down, so that the budget deficit will rise this year to 4 percent of GDP (not good enough, but better than 6 percent).

There is also an absurd over-exaggeration in Israel over the power of the interest rate, and talking about it. U.S. Federal Reserve Chairman Alan Greenspan has cut interest rates there frequently and in large doses from 6.5 percent in December 2000 to 1.75 percent a year later, and there it has stayed. And how did this hit the dollar vis-a-vis the euro, the pound and the Swiss franc? Not at all. Because along with the sharp cut in interest rate, investors across the globe believe there is in Washington a serious leadership, that the U.S. economy will come out of the high-tech crisis and be stronger for it. So the dollar continues to be a sought-after currency, despite the heavy reduction in interest rate.

The conclusion is that with all due respect to the interest rate, the factor that determines the strength of a currency is the state of the economy and future expectations. What counts is the quality of leadership, budget, investment and carrying out reforms - and terror attacks. So the be-all and end-all is not what Klein announces next Monday afternoon, but more important is what Finance Minister Silvan Shalom does in the economy, what MKs get up to with the emergency plan, and what Prime Minister Sharon does on the security front.