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Investment bank Goldman Sachs estimates that Bank of Israel Governor David Klein will raise interest rates by 1.2% in the coming three months, bringing key lending rates up to 5%.

The economists said that Klein might not raise interest rates next Monday, but he will probably do so in the coming months.

They write in the bank's weekly review that the current fiscal policy will not enable the government to attain its targets. The economists believe the budget deficit will reach 5.1%, compared with the 3% target. Their forecast takes into account optimistic growth forecasts of 2.9% in 2002.

Goldman Sachs said that the high January consumer price index, 1.1%, was affected by big price rises in housing, which comprises 21% of the index. The economists believe that because of the recession, most of the other index components were not affected by inflationary pressure.

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