The Bank of Israel is expected to raise the interest rate tomorrow (Monday) by another half a percent, which will bring the interest rate to 1.75%. Since February of this year, when the interest rate was 0.1%, the Bank of Israel has completed a steep increase of 1.65%.
The first people who are expected to be affected by this are the public of mortgage takers, the increase in interest rates has already led to an increase in the price of up to hundreds of shekels per month in the aggregate.
This step will take place against the background of high inflation in Israel, the heavy economic burden and the high cost of living.
A necessary step
Prof. Asher Blas, former chief economist at the Bank of Israel and lecturer in economics at Ashkelon Academic College, told Israel Today that raising the interest rate is a necessary step: "We must raise the interest rate because the economy is in an inflationary state, far beyond the target," he explained.
"Expectations for the future have decreased compared to what they were a few months ago, but we must converge on the inflation target, i.e. 2% inflation. On the one hand, there are signs of moderation in goods abroad, on the other hand, the economy is in excess demand.
We see it in the collection of taxes, which are beyond expectations."
Is the interest rate expected to rise beyond that in the future?
"This is a result of what will happen next month and what will be the urgency of the increases," explains Prof. Blas and clarifies that he cannot know.
"However, the message is clear -
interest rates are being raised. This is a restraining monetary policy, in a period of excess demand and in the period before elections, in a period when there is a transitional government."
According to Prof. Bells, the effect of the interest rate increase is mainly on those who have a prime interest mortgage, but also on those who are in overdraft.
"The claim is that these measures will result in the fact that if the inflation rate drops afterwards, it will affect the cost of living, which will rise at a lower rate."
On the other hand, Prof. Blas claims, there may be a beneficial effect on those who have a deposit in the bank: "Despite the increase in interest rates, we have not seen the banks roll it out for the benefit of customers, meaning those customers who have short-term deposits, but may be those who have funds Such will receive more interest than in the past."
Growth continues
at Bank Leumi. They believe that the Bank of Israel may raise the interest rate even by 0.75%.
According to Dr. Gil Michael Bafman, Leumi's Chief Economist and Dodi Reznik, Interest Rate Strategist at Leumi Capital Markets, the sharp increase in the Consumer Price Index for the month of July brought the inflation environment to a record high of nearly 14 years. , to give greater weight to interest rate hikes in the near term, as a containment measure for rising inflation, the possibility of an interest rate hike of 0.75% should not be ruled out."
The housing section continues to rise and it seems that further increases are expected in the coming months: "Against the background of the continued strengthening of the shekel, similar to the situation in 2009-2011, the Bank of Israel may be forced to intervene in the foreign exchange market at the same time as the interest rate hike continues.
The growth figure shows that the Israeli economy is far from a slowdown and certainly from a recession.
According to our estimate, it seems that the year 2022 is expected to amount to a growth of about 6%."
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