Israel’s Rising Interest Rates & GDP

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Israel Raises Interest Rate to 3.25% - Cash Earns 2.75%

On May 23, the Bank of Israel raised the basic interest rate by 25 basis points to 3.25% due to the rising Israeli inflation rate and to curb the continuing rise of house prices. This means investors will earn 2.75% on their cash deposits in an Israeli brokerage account. Having raised the rate by 50 basis points two months ago, Bank of Israel Governor Professor Stanley Fischer took time out in April and left the rate unchanged that month. Goldman Sachs predicts Israel's interest rate will reach 4.25% by the end of 2011 and 5.25% by the end of 2012. JP Morgan predicts 4.5% and 5.5% respectively. In comparison, the U.S. base interest rate has remained 0-0.25% for the past 2.5 years.

OECD raises Israel 2011 growth forecast to 5.4%

The OECD, the economic forum of 34 developed nations, predicts in its latest Economic Outlook released in May, that Israel will achieve 5.4% GDP growth in 2011, up from 4.7% in 2010. Israel's growth will outstrip other OECD developed nations, whose growth is predicted to be 2.3% and 2.8%, respectively. In Q1, 2011, Israel's actual GDP was 4.7%, compared to Q4, 2010's growth of 7.6%.

Israel 3rd Fastest Growing Home Prices in the World

Home prices in Israel in the first quarter of 2011 were 7.81% higher in inflation-adjusted figures and 12.31% higher in nominal figures than in the corresponding quarter of 2010, according to "Global Property Guide". The rise in prices was the third fastest in the markets covered, after Hong Kong and Singapore.

Shekel Strengthens in Wake of Interest Rate Hike

The Israel currency (shekel) continues to strengthen against the U.S. dollar and Euro due to Israel's strong economy and rising interest rates. In an interview with Reuters, Governor of the Bank of Israel Professor Stanley Fischer said that he is not concerned about the strengthening of the shekel, because it is not harming Israeli exports. He also said that he predicted growth of 4.5-5% in Israel in 2011. The shekel has strengthened against the U.S. dollar 5% since January, and 26% in a little over two years. Individuals who opened a shekel investment account with $50,000 two years ago have earned almost $15,000 just by sitting in cash.

Sources: Globes, Israel Business Review

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