Israel Monetary Policy April 2022

Israel: Bank of Israel hikes rates in April

At its 11 April meeting, the Bank of Israel (BoI) raised the policy rate from 0.10% to 0.35%—the highest level since 2014.

The decision to tighten policy was driven by inflation, which has remained above the Central Bank’s 1.0–3.0% target range in recent months, spurred by higher international commodity prices. The BoI commented that one-year inflation expectations had increased to close to the upper bound of the target range, and the Bank massively revised upwards its own inflation forecast for 2022 upwards to 3.6%. The bank had leeway to raise rates; the economy is growing strongly and the labor market is tightening, with unemployment dipping below 4% in the first two months of the year according to the Central Bureau of Statistics.

In its communiqué, the BoI stated that its decision to hike was part of a “gradual process of increasing the interest rate”. This suggests that further hikes are likely down the road, particularly if inflation remains above-target in the near term, as our panelists expect.

Analysts at the EIU commented on monetary policy and its economic impact:

“The focus of monetary policy will revert more closely to inflation management, with further rate hikes expected. That is likely to significantly slow demand growth in Israel and ease the housing market boom.”

Giving their take on the future path for interest rates, analysts at Goldman Sachs said:

“We expect the BoI to deliver an additional 25 basis point rate hike to +0.60% at the next MPC meeting. Beyond this, however, we think that further tightening will depend on exchange rate developments, and if the shekel does embark on a strengthening trend, that should negate the need for significant tightening.”

The next meeting is scheduled for 23 May.

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