A week ago I came across two businessmen who were among those that had urged the governor of the Bank of Israel to cut interest sharply, pronto. And when central bank governor David Klein finally cut the rate in December 2001 by 2 whole percentage points, they were among those grousing that it was too late, but better late than never.

Last week their tune had changed to: "What's up with this Klein? He has to act fast and raise the interest tonight in order to stop inflation."

"Hold on," I said, "Weren't you all for his cutting the interest rate quickly, sharply and elegantly?" They stared daggers at me and went on their way.

Fortunately, Klein is not known as a fast draw, because 10 days have passed and the picture seems a little less dramatic. Since 2002 began, the dollar has strengthened by 10% against the shekel and inflation has increased about 5%. Prices are rising strongly, but remember, imports constitute about 50% of total GDP. In 2001, the shekel also depreciated 10% but prices rose by only 1.4% which teaches us that part of the depreciation was absorbed by traders and industrialists.

So one shouldn't sweat headlines claiming inflation is heading for 8%. Inflation forecasts are much lower, at around 4% for the next 12 months.

True, this is high, and requires attention by the governor - but a measured touch. Nothing hysterical.

Now let's throw in the fact that the emergency economic package passed its first of three readings in Knesset this week. There is every chance that government expenditure will be cut, public sector wages will be frozen, and national insurance allowances will come down, so that the budget deficit will rise this year to 4% of GDP - not good enough, but better than 6%.

Also, Israel is obssessive about the power of interest rates, and talking about it.

U.S. Federal Reserve Chairman Alan Greenspan has cut interest rates frequently and in large doses, from 6.5% in December 2000 to 1.75% a year later. And there it has stayed. And how did this hit the dollar vis-a-vis the euro, the pound and the Swiss franc? Not at all.

Because along with the sharp cut in interest rate, investors around the globe believe Washington has serious leadership, and that the U.S. economy will weather the hi-tech crisis and be stronger for it. Hence the dollar retains its allure, despite the sharp rate cuts.

Conclusion: With all due respect to lending rates, the factor that determines the strength of a currency is the state of the economy and future expectations.

What counts is the quality of leadership, budget, investment, reforms - and terrorism. So the be-all and end-all is not what Klein announces next Monday afternoon. The more important element is what Finance Minister Silvan Shalom does with the economy, what MKs get up to with the emergency plan, and what Prime Minister Sharon does on security.