Israel Monetary Policy February 2023

Israel: Bank of Israel hikes by 50 basis points in February

At its 20 February meeting, the Bank of Israel (BoI) raised the policy rate from 3.75% to 4.25%.

The decision to hike was once again driven by a desire to dampen broad-based price pressures, with inflation running at the highest rate since 2008 in January and well above the Central Bank’s 1.0–3.0% target range. Moreover, the BoI’s move likely also aimed to support the shekel, which was down around 5% in the month leading up to the Bank’s meeting. The tight labor market and robust economic activity provided the leeway for a tighter stance.

The BoI’s forward guidance suggested that interest rates would continue to rise going forward. That said, our panelists judge that the Central Bank is near the end of its tightening cycle, and see just one more rate hike in Q2.

Giving their take on the monetary policy outlook, analysts at Goldman Sachs said:

“We are revising higher our policy rate expectations for an additional +25bp rate hike at the next MPC meeting on April 3 to a new terminal rate of +4.50% (versus previous terminal rate forecast of +4.00%). We continue to forecast that inflation is close to or at its peak and will be on a declining path over the course of 2023, although this decrease will be gradual […]. In the near term, we think that the main factor shaping the monetary policy outlook is likely to be the exchange rate.”

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