The Bank of Israel held key lending rates for November
unchanged at a rate of 9.1 percent, governor David Klein
announced on Monday. Rates have been at this level now for
five months. The last change was a two percent hike in
July.
The government's inflation target for 2003 is 1-3 percent,
but many economists expected that rates would not be raised
to restrain this. Israel's interest rates are already very
high by world standards and, especially with the economy in
trouble, a new rate hike would be very difficult.
The Bank of Israel said it was concerned about the rising
yields on shekel-denominated fixed-interest government bonds.
Yields on the bonds rose to 12.1 on Monday. Bonds linked to
the consumer price index, meaning that the interest is real
interest and not nominal interest, are trading at yields
approaching 6 percent. Short-term debt certificates issued by
the Bank of Israel are trading at yields-to-redemption of 9.5
percent, which is 0.4 percent above the central bank's
nominal rate. The comparable US rate is 1.75 percent.
A month ago, Professor Klein noted several threats to
Israel's financial stability, including uncertainty about the
government's ability to push its 2003 budget through the
Knesset, and the looming conflict with Iraq. Now, Labor is
threatening to leave the coalition over the budget, which
faces the first of three parliamentary votes tomorrow.
In other news, a consortium made up of French transportation
giants Alstrom and CGEA Transport, and Israeli partners Polar
Investments (formerly known as Poalim Investments), Ashtrom,
Vivendi was chosen for the BOT (build, operate, transfer)
contract for the Jerusalem light rail system. The project is
estimated to be worth NIS 1.7 billion. The consortium is
known as City Pass.
The first line, running in a loop from Mount Herzl to Pisgat
Zeev via Jaffa Road as far as the Old City and then along
route One, is schedule to open in the summer, three-and-a-
half years from now. Sixty-nine train cars are planned to run
at five-minute intervals during rush hour and eight-minute
intervals at other times during the day, along the 13.8
kilometer route with 23 stations.
Bids are also supposed to be submitted this week for the
first line of the light rail system of Tel Aviv, which is
estimated at a cost of NIS 4 billion for the 22 kilometer
line.
According to Guy Rolnick, an economics commentator for
Ha'aretz the hi-tech fall off is not as bad as it
seems. He notes that total exports are expected to drop this
year to $8.2 billion, after falling from $11 billion in 2000
to $9.75 billion in 2001. On the other hand, in 1995 total
exports were only about $4.25 billion, so they have still
doubled since then, against a background of serious worldwide
difficulties in the entire sector.
Rolnick suggests that the figures for 2000 and 2001 should be
seen as inflated by the worldwide bubble that gripped the
industry in those days. This caused distortion all over and
drove up sales artificially. Also the figures for 2000 are
specifically distorted by huge prices that were paid for
several companies. These company sales were classified as
export of software services. Since then the price of these
companies has collapsed.
The upshot is that, even if 2003 is not a good year as is
likely, the Israeli hi-tech industry is still a major factor
in Israel and in the entire world.
