Bank of Israel May Reduce Benchmark Rate to 2%: Week Ahead
The Bank of Israel will probably lower its benchmark lending rate tomorrow to a record as Governor Stanley Fischer seeks to shore up flagging economic growth, a survey showed.
The rate will be cut by half a point to 2 percent, according to seven out of 12 economists surveyed by Bloomberg. Four expect a reduction of three-quarters of a point while one anticipates a full-point cut. The Jerusalem-based central bank will announce its decision at 6:30 p.m. tomorrow.
Fischer reduced the base rate twice in October and twice again in November by a total of 1.75 points as economic growth eased and the inflation outlook improved. Two of the cuts were unscheduled. There have been no reductions yet in December.
“Fischer is acting cautiously now and prefers to cut gradually,” said Inon Dafni, an economist at Israel Discount Bank Ltd. “He moved more quickly in October and November when there was more of a crisis atmosphere in the world than there is now.”
The central bank announced additional steps on Dec. 22 to increase liquidity in the financial system in a bid to coax banks into cutting the cost of credit to borrowers and increase lending.
The central bank’s moves have been made easier by the drop in inflation expectations payday loans. Its last survey of economists, released Dec. 17, showed consumer prices rising 0.7 percent in the next 12 months. That compares with an annual 4.5 percent in November and a target range of an annual 1 percent to 3 percent.
Economic Growth
Economic growth eased to an annualized 2.3 percent in the third quarter from 4.1 percent in the second and 5.2 percent in the first. The central bank forecasts a further slowing to 1.5 percent in 2009.
Last week, the benchmark 6.5 percent Shahar bond due in January 2016 rose 1.2 percent to 118.2, with the yield falling 20 basis points to 4.44 percent. The shekel weakened 3.3 percent as of Dec. 25 to 3.8665 per dollar from 3.7210 a week earlier.
The Tel Aviv Stock Exchange’s benchmark TA-25 Index declined 7.7 percent, its biggest one-week drop in five weeks, to 634.93. Holding companies posted the biggest losses, with Africa Israel Investments Ltd., Lev Leviev’s property development group, losing 23.1 percent; Israel Corp. down 19.9 percent; and Delek Group Ltd., which is controlled by Yitzhak Tshuva, shedding 19.4 percent.