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Short-term interest can sometimes exceed that of the central bank Bank of Israel auctions may not always end with full demand, especially when the market expects interest rates to rise, Bank of Israel governor David Klein pointed out today.

Speaking at the


conference on the government's new economic package today, Klein added, "That does not indicate a loss of control (by the central bank), it is merely part of changing the policy of the Bank of Israel to control interest rates in the market through short-term debt issues."

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On the interest rate gap between the shekel and dollar, Klein said it would not change the direction of capital movements and affect exchange rates on the spot. Capital movements depend on other factors too, such as exchange rate risks, Israel's security reality, and the government's fiscal discipline, Klein said.

On the interest gap between short-term and long-term investment vehicles, Klein commented that as price stability is restored, there the yields curve may take on a negative slope for a limited period of time, during which short-term rates may be higher than long-term.

"Above all the interest rate gaps is a heavy shadow, of the budget deficit," the governor declared, "and the government's bloating debts." Unless budgetary discipline is restored quickly, he said, the information streaming to the markets won't leave leisure time for academic analyses.