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Rate decision due at 1400 GMT on Monday
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Inflation rate at 5.3% in November, a 14-year high
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Economy to grow around 6% in 2022, slow to 3% in 2023
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Benchmark rate expected to peak at 4%, cycle nearing an
end
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reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?
JERUSALEM, Dec 29 (Reuters) – Israel’s central bank is
expected to raise interest rates for a seventh straight time
next week to a 14-year high, in what could be one of its last
moves in an aggressive tightening cycle aimed at quelling
stubbornly high inflation running above 5%.
Of the 11 economists polled by Reuters, 10 forecast that the
Bank of Israel’s monetary policy committee (MPC) will raise the
benchmark rate to 3.75%, its highest level since
October 2008, from 3.25% when its decision is announced on
Monday, when updated economic forecasts will be published.
Led by Benjamin Netanyahu, Israel’s new hard-right
government is expected to be sworn in on Thursday and
policymakers are fearful of additional inflation pressures from
what likely will be an expansionary fiscal policy, according to
preliminary coalition agreements.
One other economist anticipated a more modest 0.25
percentage point increase to 3.5% amid public anger that
mortgage lending rates have jumped sharply to make it tough on
homeowners each month.
In the rate hike cycle that followed the 2008 financial
crisis, the key rate peaked at 3.25% before moving back to 0.1%
in 2015 where it largely stayed until this year.
In late November, the central bank had raised its rate by a
half-point after two decisions of three-quarters of a point,
citing its determination to move inflation back to a 1-3% annual
target by “front loading” rate increases.
Israel’s inflation reached a 14-year high of 5.3% in
November, high for the country but below that in the United
States and Europe. The central bank and most economists project
the inflation rate easing back to within the government’s annual
1-3% target range in the second half of 2023.
As such, Monday’s expected hike is widely believed to be the
second to last in the cycle, with the terminal rate seen at 4%.
The next decision is set for February 20.
“We assume that at this level the Bank of Israel will be
able to wait to see if inflation does continue to fall towards
the target,” Bank Hapoalim economist Victor Bahar said of a
3.75%-4% peak.
Like others, he expects the key rate to stay at that level
“even after we see the inflation in the target (range) to ensure
that the decrease (in inflation) is not temporary.”
Economic growth in the third quarter slowed to a 1.9%
annualised rate from the prior three months, down from 7.4%
growth in the second quarter.
The central bank expects 6% growth in 2022 and 3% next year
— a level economists believe is ambitious given the aggressive
rate hike cycle since April.
After the prior decision, Deputy Governor Andrew Abir told
Reuters that it was likely rates would exceed 3.5% “to err on
the side of making sure we get inflation down”.
(Reporting by Steven Scheer; Editing by Emelia
Sithole-Matarise)
