Israel Is Near Executing a Rate U-Turn With First Cut Since 2015
Israel Is Near Executing Rate U-Turn With First Cut Since 2015
(Bloomberg) --
The Bank of Israel is close to cutting its key interest rate for the first time in four years, possibly as early as next month, according to analysts and investors.
Inflation that’s fallen short of the government’s target range, a strong local currency and deteriorating global growth have pushed the central bank toward easing. Only months after policy makers were on the brink of a rate hike, minutes from the October decision released last week showed two of the five monetary committee members favored lowering the benchmark from 0.25% to 0.1%.
“It appears that the probability of the interest rate being lowered to 0.1% in the coming months has increased even further,” Modi Shafrir, chief strategist for Mizrahi Tefahot’s finance division, said in a Monday note.
Investors are also pricing in a cut, which would be in line with the trend among major central banks. One-year interest rate swaps show they expect rates to fall to 0.125%, while the Israeli central bank’s one-year bills currently yield about 0.15%.
The Bank of Israel, which issues its next decision on Nov. 25, is even considering negative interest rates, and hasn’t ruled out currency intervention.
“Weaker core price pressures, amid currency strength, will encourage the Bank of Israel to cut 15 basis points at the meeting in November,” Jessica Murray, an economist at JPMorgan Chase & Co., said in a note.
The bank made its last rate move in November 2018, when it delivered an unexpected hike of 15 basis points then seen as paving the way for further increases.
The tone of its October rate statement “was quite dovish, with the committee at pains to stress the necessity of maintaining an accommodative policy stance for a prolonged period, with the risk of additional easing if necessary,” Barclays Plc economist Michael Kafe wrote in a note. He predicted the Bank of Israel would cut borrowing costs by 15 basis points next month.
To contact the reporter on this story: Ivan Levingston in Tel Aviv at ilevingston@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Amy Teibel, Paul Abelsky
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