Business in Brief: Annual Inflation Exceeds 1% for First Time Since 2014, but Interest Rates to Stay Put

Big Mac index finds shekel is overvalued versus the dollar by 15.1% | Deutsche Bank declines to roll over loan to Housing & Construction | Tel Aviv shares end mixed, weighed by tech indices

Bank of Israel Governor Stanley Fischer, 2008.
REUTERS

Annual inflation exceeds 1% for first time since 2014, but interest rates to stay put
For the first time in four years, Israeli inflation topped an annual 1% in June, but don’t expect the Bank of Israel to be raising interest rates anytime soon. The Central Bureau of Statistics said on Sunday that the June consumer price index rose 0.1% from May, bringing inflation for the past 12 months to 1.3%.That puts inflation within the government’s target range of 1-3% and would normally trigger a rate rise, except that Governor Karnit Flug last week said the bank wanted to see an “entrenchment” of inflation before it would act. Ofer Klein, the chief economist at the Harel Group, said he didn’t see a rate rise coming until next year, although Flug’s successor, who is due to be name in November, may speed things up. “The strong Israeli economy (growth, unemployment, capital markets) doesn’t justify such a negative real interest rate, especially when inflation is in the target range,” Klein said. (Avi Waksman)

Big Mac index finds shekel is overvalued versus the dollar by 15.1%
Bad news for the Bank of Israel: The Economist magazine’s latest Big Mac index, which values currencies based on the local price for McDonald’s flagship menu item, found that the shekel is undervalued against the dollar by 15.1%. Based on the assumption that exchange rates should reflect purchasing power parity, The Economist said in its survey, which was released last week, that a Big Mac costs 17 shekels in Israel and $5.51 in the United States, meaning an implied exchange rate of 3.09 versus the actual exchange rate of 3.63 (or 3.643 as of Friday). That assessment is not going to be welcome by the Bank of Israel, whose policy is to weaken the shekel to ensure the country’s exporters remain price competitive. On the other hand, based on differences in GDP per capita between Israel and the United States, a Big Mac in Israel should cost 16% less, which means the shekel is 0.8% overvalued by the latter measure. (TheMarker Staff)

Deutsche Bank declines to roll over loan to Housing & Construction
In a sign of what could emerge as future problems in lining up financing amid an African bribery probe, Housing & Construction Limited has been told that Deutsche Bank will not roll over a 100 million euro ($117 million) loan to the company coming due this month. Negotiations to roll over the loan, which was taken out three years ago to help finance construction of the Ashalim Thermo-Solar power plant in the Negev, began in November and had been approved by a Deutsche Bank compliance committee. But the loan wasn’t approved in the end, which Housing & Construction sources attributed to a change in the banking team managing the loan. Israeli institutional investors may fill the vacuum or they may hesitate because SBI, the African unit at the center of the investigation, accounts for such a big share of Housing & Construction’s revenues and profits, and it may be put up for sale. So far, no other lenders have declined to continue lending. (Yoram Gabison)

Tel Aviv shares end mixed, weighed by tech indices
Tel Aviv shares ended mixed on Sunday, weighed down by tech indices. The benchmark TA-35 index edged down 0.07% to close at 1,548.64 points, while the TA-125 edged 0.03% higher to 1,385.52, on turnover of 417 million shekels ($115 million). Teva Pharmaceuticals ended down 2.15% at 85.09 shekels. Teva was among the companies named by the U.S. Food and Drug Administration in a voluntary recall late Friday of high-blood pressure and heart drugs containing the ingredient valsartan over impurity issues. Spacecom dropped 1.1% to 12.57 despite reporting that it had received regulatory approvals for a $55 million contract for its Amos 17 satellite. Among top gainers, Partner Communications rolled up a 7% gain to 14.98 and El Al Airlines added 6.2% to close at 85 agorot. Ability plunged 14.5% to 23.02 after reporting that it would be delisted from the Nasdaq as of July 23 for failing to meet minimum shareholders’ equity. The company said it planned to appeal the decision. (Eran Azran)