Data einflation Published last Friday indicated a surprise in the December index upwards (plus 0.3% and an annual inflation rate of 2.8%) – which brings inflation closer to the upper limit of the Bank of Israel’s target range, and in the same breath the possibility of raising interest rates in Israel. However, there are disagreements among macroeconomists. While the Bank of Israel expects that in the coming year the interest rate in Israel will not change or may rise to 0.25%, some economists in the local market expect an increase in the interest rate as early as April and even two increases this year, while some do not see an increase soon. This year.
Economists at the American investment bank Goldman Sachs assume that the Bank of Israel will not raise interest rates before 2023. “The increase in the inflation rate in Israel was mainly due to the housing and food sub-categories. However, despite the lateral rise, we remain cautious about overweighting the December index, as it follows two bottom-up surprises in October and November, “according to Goldman Sachs economists.
“Inflation will start to fall in February”
In contrast to the United States, Goldman Sachs assumes that inflation in Israel is transient. The strong shekel is limiting inflationary pressures, and the government continues to focus on reducing the high cost of living in Israel, “according to economists at the American Investment Bank.
Gil Befman, the chief economist of Bank Leumi, believes that interest rate hikes in Israel are out of the question. “Against the background of the wave of interest rate increases in the world (Poland, the Czech Republic and South Korea), there has been a sharp rise in expectations for interest rate increases in Israel as well. As we wrote then, even today, we believe that “Therefore, the degrees of freedom facing the Bank of Israel are significantly higher than most of the central banks in the world. Therefore, interest rate increases are currently not on the agenda in Israel.”
Alex Jabzinski, the chief economist of Meitav Dash, writes this morning that the chance of an interest rate rise in Israel has risen and estimates that the interest rate in Israel will rise to 0.5% this year. Among the factors contributing to the rise in interest rates: Inflation has reached close to the upper limit of the Bank of Israel’s target, inflation is rising with the support of both internal and external forces; Inflation is horizontal when the weight of the items in the index whose prices have risen (excluding the housing item) is at a record level; Credit in particular is business, and mortgages are growing at an exceptional rate; Residential real estate prices are rising, which increases financial risks; and central banks are raising interest rates.
Yonatan Katz, chief economist at Leader Capital Markets, estimates that an interest rate hike is expected in Israel as early as April, and that another rate hike is possible this year. To 0.25% “.
Among these considerations, Katz points out inflation over the past year, the expectations ahead and a significant improvement in the labor market, assuming that the effects of the omicron will pass by February. Other factors that support raising interest rates in Israel, according to Katz, are the expected rise in US interest rates (the Fed is likely to raise interest rates in March), and the credit risk in the real estate industry. Katz estimates that another rate hike is likely towards the end of the year.