BoI hikes by 0.75%, in line with expectations

ISRAEL - In Brief 03 Oct 2022 by Jonathan Katz

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Aggressive tightening continues due to broad based inflation The Bank of Israel hiked today by 0.75% to a level of 2.75%. The monetary statement noted that inflation is broad based and increasingly apparent in non-tradeable prices (mostly services) which continued to accelerate to 5.1% y/y in August, despite the downward headline inflation surprise. Core inflation (4.7%) remains above target and is not much lower than other developed markets. One-year Inflation expectations are slightly below the high level of target, and within target for longer durations. The statement stressed that economic activity remains strong, and there is little mention of any real indication of a slowdown, although Governor Yaron mentioned that growth in the 3rd quarter appears to be slower than in the 2nd quarter. A hint of some deceleration did come from the forward guidance statement: “The Israeli economy is recording strong economic activity”. This probably means the level of activity is high. Last month the statement was noted “strong growth”. The labor market remains tight and at full employment environment, with job vacancies high. Governor Yaron noted the threat of wage pressure from the public sector, although, currently higher wages are more concentrated in the hi-tech sector. Higher housing prices were noted, but the BoI continues to see this as mostly a supply issue. We note that the Governor noted the resiliency of the economy in general and of the hi-tech sector in particular. He praised the frontloading of monetary policy and views current rates as already becoming restrictive. He sees rates reaching somewhat above 3% (“3% plus”), and quotes the Research Dept. forecast of 3.5% ...