Over the last few months, as global markets have experienced increased turmoil due to concerns regarding declines in oil prices, China’s economic climate, and overvalued companies across sectors, several national banks have reconsidered their stances on interest rates. The most noteworthy decisions were made by the Bank of Japan, which has instituted negative interest rates, and the Federal Reserve Bank in America, which has officially postponed its much anticipated “rate hike.”
While these decisions have received much analysis, it is important to note that several other banks are also expected to take nonconventional steps in response to the current economic climate. One country that is expected to respond strongly to what is going on is the Bank of Israel. At the moment, forward rates, which are a good representation of where traders believe interest rates will be in the near future, are pricing in a rate decline in Israel from 1% to at most .5%. In the longer-term, it is expected that the Bank of Israel will also resort to negative rates if the global economic climate does not see improvement.
The main reason an interest rate decline in Israel may happen is that exports currently make up one third of Israel’s GDP. However, recently, only the Israeli Shekel and the Swiss Franc have experienced currency deflation compared to other major currencies. This has caused Israel’s exports to be rendered more expensive internationally, which is obviously not great for a country that relies so heavily on exporting its goods.
Moving forward, it will be very interesting to see how various issues currently affecting the global economic landscape will be either resolved or exacerbated. In volatile times like these, it is important to keep a close eye on the views of various national banks, as they can help provide some insight into how economic issues are affecting several countries.