Analysts see the Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, moderating rate hikes at its next meetings in 2023. Mizrahi Tefahot Bank chief markets economist Ronen Menachem said, ""On the one hand, the central bank talks about the continued rise in inflation and stresses that it is above the target range, while on the other hand, it has begun indicating there are signs of an economic slowdown down the road. In fact, it writes that there are indications that already point to a slowdown in growth in Israel and it prepares the ground for a continued slowdown that will even lead to a transition to 0.25% hikes, and not 0.5% or 0.75%, as has happened in the most recent hikes."
Menachem continued, "I estimate that in the next announcement, on January 2, the Bank of Israel will present an economic forecast update in which the governor will present a prediction that inflation is slightly falling and on the other hand less growth, so that he will be able to justify the continued moderation of interest rate hikes to 0.25%. This direction fits in with the US Fed's policy in which estimates speak of the interest rate hike on December 14 of 0.5%, and even there we see a trend of more moderate interest rate increases in the first months of 2023.
Leader Capital Markets chief economist Yonatan Katz also sees more moderate rate hikes at the Bank of Israel's next meetings. "We are talking about less hawkish hikes than the previous meetings. We expect two more 0.25% interest rate increases (in January and February), to an interest rate level of 3.75%."
Bank Hapoalim chief strategist Modi Shafrir points out that similar to the trend in the world's largest central banks and with growing fears of the world's largest economies entering recession in 2023, the Bank of Israel has decided to moderate the level of interest rate increases. "Before the interest rate decision, the local interest rate market assumed a relatively high probability of an interest rate increase of 0.5%, as well as an additional increase of about 0.25%-0.50% in January. In the end, the interest rate increase of 0.5% was in line with our assessment, and we also maintain our assessment that the interest rate, in the current cycle, will reach at least 3.5% and in the first quarter it will reach 3.50-3.75%."
On inflation, Menachem predicts that although annual inflation is already above the target range set by the Bank of Israel, at 5.1%, it is likely that inflation will rise even further and the Bank of Israel is aware of such a scenario. He wrote, "However, it also hints at the start of the effect of the previous interest rate hikes. Inflation expectations are lower and this is an indication that monetary restraint is beginning to bear fruit and it shows that the central bank is quite calm. But again, we have to wait until January 2nd to see how the governor treats growth and inflation in 2023. I estimate that the increase will be slower and this will be a pretty good reason for the Governor to moderate and halt interest rate hikes already in the third quarter of 2023."
Published by Globes, Israel business news - en.globes.co.il - on November 22, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.