Analysts believe that the Bank of Israel should have raised the interest rate by more. Yesterday the Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, raised the interest rate by 0.5% to 1.25%. Even though this was the third time this year that the Bank of Israel has raised the interest rate, and the first time since 2011 that it has raised it by 0.5%, some analysts believe that the hike should have been by more.
Meitav Dash investment house chief economist Alex Zabezhinsky wrote, "In our estimation, despite the relatively high rise in the interest rate, the Bank of Israel is still 'behind the curve.' The Israeli economy is in an earlier phase compared with other countries in the development of inflation. If the US and other countries have already reached the peak or are after the peak, in Israel the peak is not expected for several more months."
He added, "In Israel there are still no clear signs of a fall in demand that could cool inflationary pressures. In addition to the fact that Israel is in an earlier stage in the development of the growth in inflation, the Bank of Israel also has another unique problem related to the exchange rate. Its behavior completely matches the behavior of the US stock market. The Bank of Israel has almost no influence on it, even though it has become a significant inflationary factor. The weakening of the shekel by about 5% since the last interest rate decision (May 23) alone has added 0.5% to annual inflation. If the stock market continues to fall, the Bank of Israel will need to raise interest rates more strongly, even though the fall in the stock market will probably be due to the weakening of economic activity."
Psagot Investment House chief strategist Ori Greenfeld said, "In our estimation, with the high inflation environment in Israel, and the high volatility on world markets, there is a danger of the continued weakening of the shekel, and due to the switching of attention from the shekel to domestic inflation, the Bank of Israel must adjust the pace of rate hikes to global developments."
Greenfeld predicts a further 0.5% rate hike in Israel in August and the Bank of Israel itself sees the interest rate reaching 2.75% by the second quarter of 2023.
Published by Globes, Israel business news - en.globes.co.il - on July 5, 2022.
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