As if to add insult to injury, Israel may be heading for a period of deflation. Figures released yesterday show a drop in CPI for the 3rd consecutive month. According to Globes: “The Consumer Price Index (CPI) fell 0.5% in January. According to figures released by the Central Bureau of Statistics the fall in the CPI was due to lower prices for three main items housing, energy and vacation packages in both Israel and abroad.”

I would expect these numbers to allow BOI head Stanley Fischer to drop interest rates by at least 0.5%. With such low interest rates, things are setting up for a big economic expansion. the problem in Israel is that the banks have shut off the lending faucet.

Low interest rates coupled with banks loosening credit plus tax cuts, if Netanyahu can form a coalition, could be the fuel that the Israeli economy needs for some strong growth in the second half of ‘09.

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