Fischer’s Rise Has No Followers, Deutsche Bank Says
Bank of Israel Governor Stanley Fischer will find no company in emerging markets this year as other central bankers seek to hold off on raising interest rates, according to Deutsche Bank AG.
Fischer’s 0.25 percentage-point increase in Israel’s benchmark rate on Aug. 24 to 0.75 percent is fueling speculation as to which developing nations will be next to raise rates amid signs the global recession is easing, said Drausio Giacomelli, head of emerging-market strategy at Deutsche. He predicts none will follow Israel until at least June 2010, when Chile may boost rates.
“If there’s someone like Stanley Fischer who does it, it raises the question of whether we are turning the corner,” Giacomelli said in a telephone interview from New York. “That is the question that everyone asks right now. In most cases, we haven’t seen it.”
Chilean central bank President Jose De Gregorio — who studied economics at Massachusetts Institute of Technology while Fischer taught there — also drove his country’s benchmark lending rate down to 0.5 percent to shore up growth. That “aggressive” tack has made the South American country the likeliest to next raise rates, Giacomelli said.
“Now Chile is the Israel of Latin America because they have some similarities,” Giacomelli said. “Israel was very aggressive. It brought rates close to zero, and it is a small, open economy. So is Chile.”
Five-Year Low
Fischer, who has also served as the deputy managing director of the International Monetary Fund, raised rates after struggling to get inflation within a target range of 1 percent to 3 percent. Israel’s annual inflation was 3.5 percent in July. In Chile, inflation dropped to a five-year low of 0.3 percent in July as the economy remained sluggish.
Chile’s central bank said in an Aug. 13 statement that the benchmark rate will remain at 0.5 percent for a “prolonged period.” The central bank also pledged to keep offering discounted six-month loans to banks.
Giacomelli said other developing-nation central banks may follow Chile in the second half of 2010 in raising rates.
“You need a strong rebound, stronger than we think, to justify otherwise,” he said. “You have to see consumers happy, bullish, and consuming and then you see central banks more concerned.”