Dovish Monetary Policy Ahead

The Bank of Israel (BoI)'s November 28 decision to cut its headline interest rate by 25bps to 2.75% shows that the central bank has made a rapid shift towards a dovish stance in recent months, and we expect monetary policy to remain loose over the medium term. A host of factors underpin our view, including easing inflationary pressures, rising concerns over global growth, and accommodative policies in other economies. We have therefore revised down our end-2012 and end-2013 headline interest rate forecasts to 2.25% and 2.50% respectively, from 2.75% and 4.00% previously, and note that the currency is likely to remain relatively weak over the medium term.

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