Bank of Israel ‘Has Room to Ease Policy,’ BofA Merrill Says

The Bank of Israel “has room to ease policy considerably going forward” based on inflation expectations, David Hauner head of Eastern Europe, Middle East and Africa economics at Bank of America Merrill Lynch in London, wrote in a report today.

Market inflation expectations have been “the best guide” to the Bank of Israel’s rate setting in recent years, Hauner wrote. Governor Stanley Fischer last week cut the benchmark lending rate by a quarter percentage point to 3 percent.

Israel’s two-year breakeven rate, which reflects market expectations for inflation over the period, was at 1.76 at 11:54 a.m. in Tel Aviv, implying an average annual inflation rate of 1.76 percent.

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