Citi analysts, led by David Lubin, feel that the market is pricing in too many interest rate hikes by the Bank of Israel.
One reason is that Citi is optimistic about the shekel, and sees it strengthening as the Bank of Israel stopped its systematic intervention. The analysts say that the stronger shekel should eliminate some of the need for rate hikes.
Citi expects only 100 basis points of further tightening in 2009, which will bring the interest rate to 1.75%. "While Citi is optimistic about global demand conditions in the next 12 months, we think it is unlikely that the BOI will move too aggressively on rates in the next few quarters."
Merrill Lynch said yesterday it expects the interest rate to end 2009 at 1.5%.
Citi pointed to the minutes of the Bank of Israel's monetary policy meeting last month, where it was noted, "The DSGE model with the assumption of a rapid global recovery and the alternative model gave a rising interest rate path similar to that derived from the slope of the makam yield curve". The curve is pricing in approximately 175 basis points of tightening.
Published by Globes [online], Israel business news - www.globes-online.com - on September 8, 2009
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