Thursday, August 26, 2010
Real interest rates to stay negative in the coming months
"We believe that the interest rate in the coming months will be kept at its current level, which means a negative real interest rate," says Bank Leumi. "The factor that could bring forward a rise in the interest rate is a further rise in apartment prices, a factor that the Bank of Israel said in its announcement that it will pay particular attention to."
As for the boiling hot real estate market, Bank Leumi says, "July was characterized by a further reduction in the number of privately built apartments sold, alongside a modest drop in the inventory of new homes available for sale." It adds that inventory levels point to over-demand, which leads to continued price rises.
Bank Leumi did not ignore the Bank of Israel's special focus on the real estate market, saying that the interest rate and other monetary tools are key instruments in dealing with the rise in apartment prices in the absence of a substantial increase in supply. "This attention indicates the great importance of developments in this market for the setting of monetary policy in its various aspects," says Bank Leumi.