In our opinion, the Bank of Israel is expected to raise interest rates in its decision this week from 0.35% to 0.75% and send a more “hawkish” message:
The rate of inflation has risen to 4%. There are no signs of a moderation in inflation, but rather its spread to more areas. The weight of the items in the price index whose prices have risen continues to rise with the rate of inflation.
However, at this stage it is not clear to what extent and to what extent it will affect inflation. In any case, like most central banks in the West, the Bank of Israel is expected to give greater weight to its considerations of eradicating inflation.
The unemployment rate in the economy fell to a low level of 3.1% in April. Wages in the business sector continue to rise rapidly.
The shekel has depreciated by about 4.5% against the dollar and by about 3% against the currency basket since the previous interest rate decision.
Housing prices rose at an unusual annual rate of 16.3%. The prices of new dwellings rose by about 20.7%, with about 12% of the dwellings entering the calculation still subsidized.
Meanwhile, the restraint in the mortgage market was small. The average interest rate on the shekel mortgage at a fixed interest rate has risen by only 0.6% since the beginning of the year to 3.6%, compared with an increase in government bond yields for 20 years by 1.1%. Rose by about 0.3%, compared with an increase in government bonds by about 1%.
It should be noted that real estate prices in various countries have started to fall under the influence of rising interest rates, especially in countries where particularly speculative bubbles have swelled such as Canada and New Zealand.
In the bond market, the interest rate for a year in another year stands at a level of about 2.2% and reflects the Bank of Israel interest rate of about 1.75% -2.0% in another year. To better reflect the Bank of Israel interest rate forecast.