Fischer Likely to Increase Israeli Benchmark Rate for Third Month to 2.75%

Bank of Israel Governor Stanley Fischer is likely to raise the benchmark lending rate for a third consecutive month as growth and inflation accelerate.

Fischer will boost the rate by a quarter-point to 2.75 percent, according to 15 of the 20 economists surveyed by Bloomberg. Four said the rate will remain unchanged and one said it will be increased to 3 percent. The central bank in Jerusalem will announce its decision at 5:30 p.m. local time today.

“There is strong inflation, both actual inflation and expected inflation,” Rafael Gozlan, chief economist at Leader Capital Markets Ltd. in Tel Aviv said in a telephone interview. “The Bank of Israel should raise by 50 basis points, but it won’t, because of concern that this would cause the shekel to appreciate by too much.”

Fischer has gradually increased the rate in a bid to moderate shekel gains and help exporters compete in world markets. In the last quarter of 2010, the economy expanded 7.7 percent, the fastest pace in four years. In February, inflation accelerated to an annual 4.2 percent, its fastest in more than two years and outside of the government’s target range of 1 percent to 3 percent for a second month.

Falling unemployment, rising wages, increasing commodity prices and negative real interest rates are all contributing to inflation, Gozlan said. Unemployment declined to a preliminary 6.1 percent in January, its lowest in more than two years, the Central Bureau of Statistics reported on March 24.

Inflation expectations for the next 12 months were 3.1 percent in February, above the upper limit of the target range, according to a survey of economists the central bank released March 22.

Fischer has lifted the rate by 2 percentage points since August 2009. In the past year, the shekel has gained about 4 percent, closing at 3.5581 on March 25. The TA-25 benchmark index has risen by about 6 percent during the same period, led by Avner Oil a partner in gas fields off the country’s coast.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net

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