Analysts see inflation provoking higher rate hike

The higher than expected January Consumer Price Index (CPI) rise of 0.3%, which has lifted annual inflation to 5.4% has caused analysts to reassess the interest rate hike which will be announced on Monday by the Bank of Israel Monetary Committee. Before the latest CPI reading the consensus was a 0.25% interest rate hike to 4%.

Leader Capital Markets chief economist Yonatan Katz said, “The high January CPI supports an interest rate hike of 0.5% next week. This hike is not expected to be the last interest rate hike.”

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Katz adds that the political uncertainty around the planned judicial reform might also support continued rate hikes by the Bank of Israel. Among other things he cites, “the depreciation of the shekel in recent days due to the political uncertainty and the beginning of a trend of capital leaving for overseas.”

Bank Hapoalim chief economist Modi Shafrir said the record high inflation in the current cycle strengthens the likelihood of a 0.5% rate hike by the Bank of Israel to 4.25%.

But Harel Insurance and Finance Head of the Economics and Research Department Ofer Klein is sticking with his original 0.25% rate hike prediction. “We expect a moderate hike of 0.25% unless the data for GDP growth in the final quarter of 2022, which will be published Thursday afternoon, will be significantly surprising.”

But Klein also stresses that next Monday’s rate hike is unlikely to be the last. “Due to the continued rate hikes worldwide, there are concerns about the continued depreciation of the shekel and the strength of the job market.”

Published by Globes, Israel business news – en.globes.co.il – on February 16, 2023.

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