Bank of Israel to Raise Rates to Curb Inflation: Week Ahead

By Susan Lerner

July 27 (Bloomberg) -- The Bank of Israel will probably raise its benchmark interest rate by a quarter of a percentage point after inflation exceeded the target range for a seventh month and the economy grew faster than the bank forecast.

The bank will increase the rate to 4 percent, according to 10 of 17 economists surveyed by Bloomberg. The rest predicted no change. The Jerusalem-based bank will announce its decision at 6:30 p.m. on Monday.

``There are some indications that show the economy is slowing and some that show growth is still high, but the Bank of Israel still has a little room to raise rates,'' said Ori Greenfeld, chief economist at Clal Finance Investment Management Ltd. He is predicting a quarter-point increase.

Bank Governor Stanley Fischer increased borrowing costs by a quarter-point in each of the past two months after inflation accelerated to 5.4 percent in May, the fastest pace in more than five years. While inflation unexpectedly slowed to 4.8 percent in June, it remained above the 1 percent to 3 percent target range.

The bank said on June 18 the economy will probably grow 4.2 percent this year, higher than its April 1 forecast of 3.2 percent, though still the slowest pace since 2003. The bank estimated growth will ease further to 3.1 percent in 2009.

Last Week

Last week, the yield on the benchmark 6.5 percent Shahar bond due in January 2016 rose to 5.76 percent. The shekel fell 4 percent to 3.498 per dollar.

The Tel Aviv Stock Exchange's benchmark TA-25 Index rose 2 percent to 1,028.13. Verifone Holdings Inc., a maker of electronic-payment equipment, climbed 18 percent. Teva Pharmaceutical Industries Ltd., the world's biggest maker of generic drugs, rose 12 percent.

Israel's unemployment rate fell to 6.1 percent in May, the lowest in about two decades, reflecting economic growth that has topped 5 percent since 2004.

Check Point Software Technologies Inc. reported that revenue rose 13 percent to $199.6 million, topping the average analyst estimate of $195.2 million. The world's second-largest network-security company also raised its sales outlook for the year.

Lawyers for Prime Minister Ehud Olmert on Tuesday completed a five-day cross-examination of Morris Talansky, the U.S. businessman who has testified that he gave Olmert more than $150,000 in over a 15-year period. Israel's Justice Ministry asked Olmert and others involved in the corruption probe to undergo polygraph tests on leaks in the case.

The following is a list of important events in Israel next week:

Event Date
Bank of Israel rate decision July 28
Teva Pharmaceutical 2Q earnings July 29
AudioCodes reports 2Q earnings July 29
Alvarion reports 2Q earnings July 30
Partner Communications 2Q earnings July 31

To contact the reporter on this story: Susan Lerner in Jerusalem at Slerner2@bloomberg.net;