| Rafi Gozlan, Chief Economist at IBI Investment House
The Monetary Committee announced a 50 basis point increase in interest rates to 4.25%, higher than the consensus estimate and our estimate of a 25 basis point increase. The change in the wording in relation to the previous decision was not substantial and the future direction aimed at continuing the process of raising the interest rate remained unchanged. Thus, with regard to, the reference to the horizontal increase in inflation and the fact that inflation expectations continue to move within the target remained unchanged, but the part referring to moderation in some of the index’s sections was omitted.
This omission was supported both by the increase in the proportion of sections in which an increase of more than 5% was recorded, and by a relatively high increase in inflation minus seasonality in the last two quarters. Of course, the relatively high increase in the January index also played a role in its effect on these indicators, but it is likely that following the effect of the base after the February index, a decrease will be recorded in them.
In any case, it is possible to detect a higher degree of caution on the part of the committee when it comes to the decrease in the rate of inflation, that is, it seems that the committee is interested in seeing an actual decrease in the rate of inflation before slowing down the rate of interest rate increases. In this aspect, the main concern comes in the coming period mainly from the exchange rate of .
The committee did note the increase in volatility in the exchange rate that characterized the last period, but there is no doubt that the fear of the consequences of the damage promoted by the government, which may translate into an accelerated depreciation of the exchange rate of the shekel and hence a move away from the achievement of the inflation target, was before the committee’s eyes and supported an increase in the dose of 50 B and not in 25 PS.
In terms of real activity, reference to the high level of activity in the economy and the tight labor market continued while moderating the end data. Also, the committee noted the high impact of vehicle imports on the growth figures, and estimated that they are responsible for about half of the contribution to the high figure (5.8%) of the last quarter, meaning that the committee saw before its eyes an actual growth of about 3%.
On the other hand, the committee noted more clearly the downward trend in activity that characterizes the residential real estate industry. In terms of the global picture, a more optimistic tone was recorded against the background of the improvement in macro data and an upward revision of the global growth forecast, but as far as inflation was concerned, the tone was more balanced and even though Reference to a decrease in inflation, but also to a slower rate of decrease in basic inflation.
In the bottom line, it seems that in view of the high inflation and the upward risk of inflation in the future, which stems mainly from the fear of accelerating the devaluation trend in the exchange rate against the background of the government’s measures to weaken the judicial system, and to some extent from the expected wage agreement in the public sector, the committee wishes to see an actual slowdown in inflation before slowing down the rate of interest rate increases .
In our estimation, the base effect is expected to lead to a decrease in the rate of inflation and hence in the rate of interest rate increases, so taking into account the high inflation environment and the expectation of further interest rate increases in the US and the Eurozone, we expect 2 more increases of 25 basis points to 4.75% in the next decisions.
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