BoI surprises with a 0.75% rate hike

ISRAEL - In Brief 22 Aug 2022 by Jonathan Katz
Rates moved 0.75% higher on August 22, to 2.0%, with the monetary statement noting the acceleration in inflation in July (above the upper bound and broad based), the robust growth print in Q2 2022 of 6.8% and the strong level of activity in July, the tight labor market (the employment rate is above that pre-Covid), and some wage pressure in the private sector (mostly hi-tech and professional services). Housing prices have accelerated, up 17.8% y/y. On the other hand, Inflation expectations for all ranges (especially one-year) have declined to within the target range. The shekel appreciated by 8.8% since the last rate decision (against the basket). Global activity is decelerating. The FG remained unchanged: “The pace of raising the interest rate will be determined in accordance with activity data and the development of inflation” Implications: The Bank of Israel continues to tighten more aggressively than market expectations, as it has done since the beginning of this tightening cycle. It will be interesting to note (in 2 weeks) whether this rate decision was unanimous as well. Following this hawkish decision, it is fair to assume that rates will reach 2.75%-3% by the second quarter of 2023.

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