Bank of Israel to hike rates 1/4-point next week as inflation hits 4%

div classBodysc17zpet90 cdBBJodivpBy Steven Scheerp

pJERUSALEM Reuters – The Bank of Israel will likely raise shortterm interest rates by a quarterpoint next week to rein in rising inflation, partly caused by low unemployment and strong economic growth.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pOf 14 economists polled by Reuters, 11 forecast that the central banks monetary policy committee MPC will raise the benchmark rate to 0.6 from 0.35 when it announces its decision Monday at 4 p.m. 1300 GMT. Three others anticipate a stronger 0.4 point increase to 0.75.p

p“In light of inflation, the depreciation of the shekel and interest rate increases in the world, and despite the weak growth figure” the Bank of Israel will raise its key rate 0.25 point, said Ofer Klein, head of economics and research at Harel Insurance and Finance.p

pPolicymakers embarked on a tightening cycle last month, raising the rate from an alltime low of 0.1 for its first rate increase since 2018 and where it had been since a 0.15 point reduction at the outset of the COVID19 pandemic.p

pIsrael‘s inflation rate reached a new peak since 2011 of 4 in April, above the government’s annual target of 13 and joining the United States and some European central banks in tightening policy to try and relieve pressure on prices. p

pSome analysts foresee inflation at close to 5 before moderating.p

pAt the same time, Israels economy contracted an annualised 1.6 in the first quarter from the prior three months but economists largely dismissed the figure as misleading and said the economy — which grew 8.2 in 2021 — remains robust. The Bank of Israel estimates 5.5 economic growth in 2022.p

pIsraels jobless rate fell to 3.1 in April from 3.4 in March, underscoring a tight labour market and concerns of a wage spike.p

pAs a result, analysts believe a 0.4point move up in key interest rates is possible.p

pThe Bank of Israel will likely raise rates to “get to the point of neutrality, if not tighter than neutrality,” as soon as possible, said Bank Leumi chief economist Gil Bufman.p

pCiti economist Michel Nies said he could “almost equally well argue the case for a 40 basis point hike and mostly choose the 25 basis point increment” since “it might give the Bank of Israel more options in the subsequent meeting.”p

pAnalysts widely expect rates to reach 2 in the next year.p

pOne factor in favour of a smaller increase is the weaker shekel, which has depreciated 8 so far this year versus the dollar. A larger rate hike, analysts believe, could rapidly strengthen the Israel currency and harm exports.p

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pp Reporting by Steven Scheer Editing by Bernadette Baump

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