The level of the Bank of Israel’s benchmark interest rate is “appropriate” for the economy, which is expected to improve next year, according to the newest member of the institution’s monetary policy committee.
“Without any unexpected deterioration in economic conditions, according to staff forecasts, this rate is appropriate,” Nathan Sussman said on the sidelines of an economic conference in Eilat. He heads the central bank’s research department and joined the monetary policy committee at the beginning of the month.
Policy makers last month kept the lending rate at 1 percent, the lowest in four years. The committee next meets on Nov. 25, when 14 of 17 economists surveyed expect the bank to keep rates unchanged, while three forecast a quarter-point cut.
The Bank of Israel has gradually lowered the key rate from 3.25 percent in 2011, including a surprise rate cut in September. It also began buying dollars again in April after a lull of almost two years, including $835 million in September, to curb the currency and bolster the export-driven economy. The shekel has gained about 10 percent in the past year. It weakened 0.4 percent to 3.5435 at 2:46 p.m. in Tel Aviv.
The yield on the benchmark 4.25 percent bond maturing in March 2023 declined three basis points to 3.65 percent at 2:50 p.m.
If economic conditions do deteriorate, then reducing rates “may be appropriate,” Sussman said. The Bank of Israel forecast in September that the economy would grow 3.6 percent in 2013.
“All our forecasts show, and these forecasts are based on IMF, OECD and other major forecasters, is that 2014 will look better than 2013,” Sussman said. “Looking forward, according to these forecasts, it seems that things are not going to get worse.”
The Bank of Israel “is looking at the U.S.” for clues about the path of lending rates globally, he said.
“The decision on the tapering would be a signal to us and many other central banks that the current level of monetary easing in the world is starting to change,” Sussman said. “Once the Fed moves, that would be a signal to everyone else.”