The sharp growth recorded in the fourth quarter of 2022, the increase in the level of inflation and the depreciation of the shekel against the dollar are expected to lead the Bank of Israel to raise the interest rate tomorrow (Monday) for the eighth time in a row, when the probability of a 0.5% increase has increased to approximately 70-80%.
Tomorrow at 16:00 the Bank of Israel will publish the new level of the interest rate in the economy, which according to most estimates, will rise by 0.5% to a level of 4.25% - its highest level since October 2008.
Governor of the Bank of Israel, Prof. Amir Yaron, on a trip after the previous interest rate increase (archive) // Photo: L.A.M.
We note that until about two weeks ago, the interest rate market estimated that the increase would be more moderate, and similar to the Central Bank of the USA, the governor of the Bank of Israel will also raise the interest rate by only a quarter of a percent. However, while inflation in the USA is admittedly higher than in Israel, it is on a downward trend consistent
On the other hand, in Israel, the consumer price index for the month of January published last week indicated an acceleration of the rate of inflation to the level of 5.4% in the last year, and in particular an acceleration of rental prices.
"The only factor (almost) supporting an increase of only 0.25% is the lowering of the rate of interest rate increases in the US, although this week some members of the Fed spoke out in favor of a renewed increase of 0.5% at the next meeting, and the European Central Bank raised (and is expected to continue raising) the interest rate in - 0.5%", writes Modi Shafferer, Chief Financial Markets Strategist at Bank Hapoalim, in his weekly review.
"The market embodies a very high probability of an interest rate increase of half a percent, and a final interest rate of 4.5%. So, to the extent that the Bank of Israel does not raise the interest rate by half a percent, this will lead to a horizontal increase in inflation expectations towards the upper limit of the target and the continued depreciation of the shekel."
How much will the interest rate be?
Governor of the Bank of Israel, Prof. Amir Yaron (archive), photo: Oren Ben Hakon
These words are said after this week the dollar continued to strengthen against the shekel and rose to 3.57 shekels on Friday.
"The devaluation of the shekel has been taking place in recent weeks mainly against the background of concerns about the consequences of the legal reform, and last Friday the dollar strengthened to the level of 3.57 shekels. The correlation that characterized foreign exchange trading in recent years with the stock market in the United States has broken off. Thus, in the last month the S&P500 index It increased by 4.6%, which was supposed to strengthen the shekel following the hedging operations of the institutional bodies, but in practice the shekel weakened during this period by about 4%.
"The shekel will be affected by the degree of compromise in the reform"
The weakening of the shekel against the dollar contributes to increasing inflationary pressures, as it affects the increase in the price of fuel, flight prices and prices of imported products.
According to Yonatan Katz, the chief economist of Leader Capital Markets, "The strength of the shekel will be affected by the degree of compromise in the legal reform. A reform with only 'minor' changes compared to today's situation may support the shekel, but a full or almost full reform may damage the rating horizon and therefore support a devaluation of the shekel. Difficult To quantify the scope of capital movements abroad by Israeli households and businesses, but this is a gradual process that is expected to cloud the shekel."
"The weakening of the shekel will be affected by the compromises in the reform", demonstrations outside the Knesset against the legal reform (archive), photo: AP
According to him, "In recent years, the strengthening of the shekel was due both to increases in foreign markets (and the sale of foreign currency by institutions) and also to the flow of real investments into the economy. It seems that in the current environment, institutions will increase their holdings in foreign stocks at the expense of Israel, as well as the exposure In addition, the real investments into the Israeli economy are already in a considerable decline this year. Without a reasonable compromise in the reform, the devaluation trend will continue, the inflationary environment will rise and with it the Bank of Israel interest rate."
The mortgage will become more expensive
According to the estimates of the Association of Mortgage Consultants, the increase in interest rates by half a percent is expected to lead to an increase in the monthly repayment of the average mortgage by about 120 shekels per month (a mortgage of one million shekels, about 40% of which is in the prime route).
This, in addition to the increase in the price of about a thousand shekels a month since April last year - when the Bank of Israel began raising interest rates in the economy.
So what do we do with the mortgage?
"After the interest rate increase, the prime route becomes the route with the nominal interest rate and the highest monthly repayment in its mortgage. In this reality, the borrowers are forced to choose between alternatives, all of which are problematic. Either pay monthly repayments today at the limit of their ability, or be exposed to significant early repayment fees, or take routes who stick to the index and see their debt balance only increase," says the chairman of the professional committee of the Association of Mortgage Consultants, Yonatan Berliner, in a conversation with Israel Hayom.
"The reality requires the intervention of the regulator, the Bank of Israel or the Knesset as early as today. We must allow at least one 'normal' mortgage course in which the public is not unreasonably harmed. And in the meantime, everyone who takes a mortgage should know what they are signing, make an accurate calculation of the possible changes In the monthly repayment, the increase in the amount of the debt and the possibility of future early repayment fees".
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