Goldman Sachs reverses, predicts rate cut in Q1 2003

Goldman Sachs has reversed its prediction, released just a week ago, and now says it expects the Bank of Israel to maintain interest rates steady for the next three months, then lower them in the first quarter of 2003.

Last week Goldman Sachs predicted that consumer prices would prove to have risen 0.4% in August. Against the trend, the investment bank predicted that Bank of Israel governor David Klein would raise interest rates on central bank sources to 9.5% by year-end.

After the August CPI proved to have dropped by 0.4%, the bank reversed its estimate to a gradual decline in lending rates.

Goldman Sachs predicts that the September CPI will be negative.

The bank's macro-economic analyst, Daniel Tenengauzer, says that imports of investment products dropped in August, while imports of raw materials increased. Until August, both parameters had been changing in tandem, he said.

Tenengauzer estimates that the divergence of the two indices, and the seasonally adjusted increase in raw materials imports, attests to positive sentiment among companies. He also wrote, however, that only after another positive month could the development of the Israeli economy be seen better.