Israel’s Consumer Price Index (CPI) rose 0.4% in February, and in the twelve months to the end of February, the rate of inflation fell to 2.5% from 2.6% at the end of January. But even though inflation is well within the Bank of Israel's annual target range of 1%-3%, analysts are uncertain as to whether the Bank of Israel Monetary Committee will cut the rate from 4.5% when it meets on April 8.
Leader Capital Markets chief economist Jonathan Katz focuses on the impact of the housing market, where prices have begun rising again, and the market could became problematic. He notes that the Bank of Israel Monetary Committee pointed out in its last interest rate decision about the stagnation in the housing market and the shortage of building workers, which could influence prices.
Katz stresses that the falling inflation data does not ensure that the interest rate will be cut in April. "There are still three weeks until the next decision and the direction will depend very much on the foreign exchange market and the situation of the shekel. Also, the geopolitical situation will affect the bank's ability to provide monetary relief to the economy."
On the other hand, BDO Consulting Israel chief economist Chen Herzog believes that the Bank of Israel Monetary Committee will cut the interest rate at its next meeting but agrees that the uncertainty could influence the decision. "The pace of continued interest rate cuts will be largely influenced by the government's ability to complete the taxation measures of the fiscal package that the state presented to the rating agencies but hasn't yet approved."
Before publication of the February CPI, Bank Hapoalim chief economist Modi Shafrir said that the moderation of expectations for a US Federal Reserve interest rate cut in June (and throughout 2024), combined with the weakening of the shekel last week, has also led to a moderation of expectations in the market for a Bank of Israel interest rate cut in April to about 50%."
Shafrir added that he believes the likelihood of a rate cut is now somewhat higher at 70% due to the continuing fall in inflation to 2.5% and a moderation in core inflation, despite his assessment that inflation is expected to accelerate in the spring and summer months.
He said, "Prof. Amir Yaron said after the most recent interest rate decision that "as soon as it seems that inflation is at least establishing itself in the current environment, we will be able to continue the process of lowering the interest rate." Yaron added that the committee strives for a "careful and measured" interest rate reduction that matches the research department's forecast for an interest rate of 3.75%-4.0% at the end of the year.
Published by Globes, Israel business news - en.globes.co.il - on March 17, 2024.
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