Merrill Lynch’s O’Neill Says Israeli Interest Rates Must Rise
O’Neill spoke at a press briefing in Tel Aviv.
“We’re seeing a structure of interest rates that are effectively zero. That to me is simply unsustainable.”
“Inflation has been dominated by the housing market. We’re likely to see further upside inflation surprises coming through in the coming months. If rate normalization is delayed, that I think would delay the day of adjustment further.”
“In an environment where offshore money is continuing to flow into the economy, supporting certain consumer sectors, there is a structure of interest rates that are simply too low for the environment for growth. It’s likely that we will see further increases coming through and indeed the currency markets themselves are anticipating this.”
“We’re still likely to see the currency rise against the dollar in the first half of the year, but there will be a reckoning and that reckoning will come in the form of higher interest rates through much of the year.”
“Israel is in a serene state of full employment, one could argue. There is little in the way of an output gap between potential and actual output. The sad part about these serene sorts of steady state environments is that they don’t last.”
To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at firstname.lastname@example.org.