The Bottom Line / Belt, suspenders and a good grip
After surprising us once by lowering interest rates by 0.2 percent (in February), Meir Sokoler reverted to his old habits and stopped lowering rates.
1. Meir Sokoler.
After surprising us once by lowering interest rates by 0.2 percent (in February), Meir Sokoler reverted to his old habits and stopped lowering rates. Yesterday he announced once again that he was leaving rates for May without a change: 3.5 percent, in spite of the fact that all the factors are on the side of lowering rates. These include: a negative consumer price index, expected inflation within the range of stable prices, Israel's risk premium on the way down and a downshifting in the Israeli economy.
Since February Meir Sokoler has been keeping interest rates the same, and this is a serious mistake that has cost the economy in reduced economic activity and lower employment levels. But Sokoler prefers to wear a belt, suspenders and to hold up his pants with both hands. Just to be safe.
2. Stanley Fisher.
Next week Stanley Fisher will be sworn in as governor of the Bank of Israel. The first change he needs to make is related to the exchange rate policy - the currency fluctuation band. The present policy requires that the exchange rate remains within a limited range, and the central bank is required to intervene (by buying or selling foreign currency) whenever the exchange rate threatens to move out of the range.
This is a policy whose time has passed, and no one is more appropriate than Fisher to abolish it. This is a good time to cancel it, too, since the dollar and the currency basket are calm and quite far away from the band's limits. Netanyahu would not say no to Fisher. He needs him. And most important: The move would increase confidence in the shekel; as well as the simple fact that a completely free-floating shekel is the more stable and the correct decision.
3. Osem's pasta.
Even though we are still celebrating the Passover holiday, it is still appropriate to discuss as soon as possible the examination carried out by the Trade Ministry, which showed that Osem's pasta prices are much higher than similar products in Western economies. In the ministry they were surprised, but whoever knows even the basics of economic principles should not have been surprised.
Until a year ago pasta prices were under supervision, along with a 12 percent tariff on imported pasta. This writer claimed for years that the tariff should be abolished, since it only served to raise Osem monopoly's profits and harm competition.
The CEO of Osem, Dan Propper, agreed to canceling the tariff in exchange for removing price supervision on pasta. This of course was an unreasonable demand, which would have been rejected immediately in any normal country, but here in Israel the Ministry of Trade, headed by Ehud Olmert, gave in to the rich and did what it was told.
I claimed then (see my article from April 2, 2004) that such an act would cause pasta prices to rise, but the director general of the Trade Ministry, Raanan Dinur, stated that there is competition in the pasta market, and therefore, it was appropriate to remove price supervision.
It seems that he doesn't live in Israel. Here are the results: pasta prices, which were 60 percent higher than elsewhere in the Western world, rose even further and are 75-100 percent higher than in developed countries - and this hurts the weakest families in particular.
But instead of Dinur's forcing Osem to lower prices and put pasta under supervision (as appropriate and common when talking about a monopoly), the head of the ministry's planning, research and economic division, Benny Fefferman,is now recommending to put pasta under a "weakened price supervision." This would require Osem to report only on planned price rises. It is hard to take this seriously.
It is quite interesting that the treasury's budget division, and Benjamin Netanyahu, who are so proud of their war against monopolies, have kept silent when it comes to pasta and Osem.