Following Russia’s invasion of Ukraine and the official start of the war, oil prices soared by more than 5.0% this morning and oil broke the psychological barrier of $ 100 a barrel and traded this morning at $ 102 a barrel. Recall that even before the deterioration in the geopolitical sector, the world was in an energy crisis, mainly from the direction of Europe in a way that led to a jump in the prices of natural gas and coal.
The West’s response to Russia’s actions is expected to be in the form of worsening economic sanctions on Russia and in light of the fact that Russia is one of the three largest oil producers in the world and Europe’s main gas source – risks to oil prices in particular and energy in general continue to be upward. For Israel, the combination of a jump in oil prices together with the significant devaluation we are witnessing in the shekel increases inflationary risks in Israel and is expected to lead to upward updates in forecasters’ forecasts.
In this context, after the words of the Governor, Prof. Amir Yaron, to Bloomberg that an increase in interest rates in April is possible – it seems that the Bank of Israel, like the other central banks in the world, finds itself trapped. Is it possible to raise interest rates when the geopolitical risk from Russia-Ukraine materializes? We currently do not have a clear answer. Central banks will have to weigh the expected impact on aggregate demand against the expected further jump in global inflation.