Israel's M1 money supply +8.8 pct in December : LUSENET : TimeBomb 2000 (Y2000) : One Thread


FOCUS-Israel's M1 money supply +8.8 pct in December

Michele Gershberg


JERUSALEM, Jan 16 (Reuters) - Israel's M1 money supply surged a preliminary 8.8 percent in December to 25.9 billion shekels, the highest monthly rise in at least a decade, the Bank of Israel said on Sunday.

Banking sources said the unusual rise was due to heavier cash withdrawals and early salary payments in preparation for the transition to 2000. The central bank had increased the total cash available for circulation in December to 30 billion shekels from the 15 billion shekels generally available to meet liquidity demands at year's end.

``There were heavy bank withdrawals because of millennium bug fears, especially in the last few days of December,'' said Hezy Gutman, chief economist at the First International Bank of Israel. ``I do not believe it reflects an extraordinary monetary development or trend,'' he said.

At the same time, the heavy withdrawals have not been fully offset in January, suggesting a correction to the rise may take some time and could delay an expected interest rate cut, he said.

``This kind of figure could definitely influence the interest rate decision, either to moderate a rate cut or to delay it altogether,'' Gutman said. He estimates the Bank of Israelwill cut its base lending rate of 10.7 percent by 0.3 percentage point at the end of the month.

The Bank of Israel said M1 had risen 18.6 percent in all of 1999, compared with a 12.7 percent rise in 1998. In November M1 grew 0.3 percent, following a 1.1 percent decline in October.

Total credit fell 0.8 percent to 391.2 billion shekels in December, after declining by the same amount in November. Total credit rose 10.1 percent in 1999, compared with a 17.4 percent rise in 1998.

The surge in money supply is not in line with recent inflation figures. On Friday, the Central Bureau of Statistics said that the December consumer price index was unchanged from November and that the 1999 CPI rose by 1.3 percent, the lowest inflation rate since 1967.

The CPI and money supply are two key indicators the Bank of Israel uses in determining interest rates.

($1 - 4.10 shekels)

-- (M@rket.trends), January 16, 2000


more funny money. everyone in this country should be driving fiats.

-- mike (, January 17, 2000.

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