By Amiram Barkat
Leading foreign banks are convinced that the Bank of Israel will lower the country’s benchmark interest rate to zero in the next three months and subsequently launch quantitative easing.
Merrill Lynch expects the Bank of Israel Monteray Committee, headed by Governor Karnit Flug, to cut the interest rate from 0.1 percent to zero when it announces the interest rate for May on Monday. “The Bank of Israel loves to surprise investors, so it may well be that the interest-rate cut will be postponed,” Merrill Lynch said.
The Royal Bank of Scotland (RBS) said it is likely that the Bank of Israel wont cut the interest rate at Mondays meeting. But RBS does expect a rate cut in the coming three months. RBS said the shekel exchange rate against the worlds major currencies is only 0.5% less than when the Bank of Israel cut the rate 15 basis points to its current historic low at the end of February.Furthermore, RBS said macroeconomic indicators for March show weakness in export orders, suggesting that the shekel is too strong.
HSBC has repeated its forecast last month that the Bank of Israel will cut the interest rate and launch quantitative easement. HSBC had predicted a bond-buying program of between NIS 27 billion to NIS 72b.
Merrill Lynch forecast that Israeli inteest rates will remain at zero at least until the second quarer of 2016.It will only begin rising again in May 2016 and will end 2016 at 0.25%, Merrill Lynch said. In its previous forecast, Merrill Lynch predicted a 0.75% interest rate at the end of 2016.