Despite fears of recession: Bank of Israel is expected to raise interest rates by 0.5% | Israel today

The Bank of Israel will announce the level of interest rates in the economy tomorrow.

Most estimates suggest that the interest rate will rise by 0.5%, so that the interest rate will reach a level of 1.25% - its highest level in nine years.

This, after for years the interest rate in the economy was close to zero.

The interest rate market predicts that the Bank of Israel is expected to continue a series of interest rate hikes until it reaches an interest rate of 2.5% -2.25%.

It will be interesting to hear what the Bank of Israel thinks about these assessments and to check what their official and stated goal for the coming year is.

The main goal of the Bank of Israel is to curb the worsening inflation in Israel, which has already reached a rate of more than 4% in the past year.

In addition, the high interest rate is also intended to cool demand in the boiling housing market, which has risen by 15.4% in the past year.

"The Bank of Israel needs to hurry. The rate of inflation has continued to rise with a wide spread of goods and services. It seems that Israel still does not have internal forces that are supposed to moderate inflation," said Alex Zevzinsky, chief economist at Meitav Investment House.

He points to an interesting trend that has taken place recently in the foreign exchange market - the expected rise in the Bank of Israel's interest rate no longer affects the shekel, which actually records a depreciation of close to 6% in the past month.

"When the Bank of Israel loses influence over one of the main channels through which monetary policy operates, it needs to raise interest rates more strongly in order to increase restraint through the other channels," says Zabrzynski.

Zabrzynski notes that economic data in Israel continues to be strong, including labor market data and credit card purchases: "Israel - an island of stability, for now. The economic data in the economy continue to be quite good. It is difficult to identify signs of deterioration in activity. "In May at a high rate of 1.8%. It seems that consumers are 'compensating' themselves for the epidemic period."

However, he warns of the slowdown that is expected to reach Israel as well: "The risks of a sharp slowdown in the world and its impact on Israel have increased. The data in the Israeli economy do not yet indicate a slowdown in activity, but it is expected to reach the second half of the year."

The Bank of Israel's move is not entirely detached from the world - the central banks of the world have also increased the rate of rise in interest rates.

Thus, the US interest rate rose by 0.75% three weeks ago - the highest rate of increase in 30 years, so that it is now in the range of 1.5% to 1.75%. Just two weeks ago, analysts' forecasts for the US interest rate rose to 3.75%. % At the end of 2023, and today it is a more moderate rise to a level of only 2.8%.

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