Israel: Bank of Israel hikes by 25 basis points in May
At its 22 May meeting, the Bank of Israel (BoI) raised the policy rate from 4.50% to 4.75%.
The decision to hike was driven by stubbornly-high inflation, which has been over double the Central Bank’s 2.0% target so far this year. Moreover, the Bank commented that year-ahead inflation expectations are also above-target. The tight labor market and robust economic activity provided the leeway for a tighter stance.
The BoI’s forward guidance did not give hints about the direction of monetary policy. The Consensus among our analysts is that the BoI has now reached the peak of its tightening cycle, and for rates to remain unchanged through end-2023.
Giving their take on the monetary policy outlook, analysts at Goldman Sachs said:
“Looking ahead, inflation is likely to be pushed higher by regulated price hikes that come into effect in May. Moreover, we continue to think that inflation will remain above the BoI’s target for a prolonged period and that, without the support of the exchange rate, it will be much harder for the central bank to achieve its inflation objective. While our baseline forecast is for +4.75% to mark the peak for policy rates in Israel, we see the near-term risks as skewed towards further hikes (especially if the Shekel remains weak).”