Rates expected to increase by 0.5% on Monday

ISRAEL - In Brief 30 Dec 2022 by Jonathan Katz

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Rates expected to increase by 0.5% on Monday On Monday, January 2nd, the Bank of Israel is expected to raise policy rates by 0.5% to 3.75%. This is our expectation, as well as that of the majority of forecasters (according to Reuters), although we cannot rule out a more moderate hike of 0.25%. What will support a hike of 0.5%? Both headline and core inflation are still accelerating (core to 5.3% y/y in November from 5.0% in October), with rental (OER) accelerating to 5.9% y/y from 5.6%, and non-housing services to 6.2% from 5.7%. Inflation remains rather broad-based with 72.1% of all items up more than 3% y/y (down slightly from 72.9% in October). Economic growth appears fairly steady, according to November’s Business Tendency Survey. Real credit card purchases increased by 4.3% saar (trend) in October-November following growth of 4.5% in the previous three months. This represents private consumption growth of 2% per capita. Manufacturing exports have expanded rapidly while hi-tech service exports have decelerated. The BoI Composite index notes some deceleration in November. The labor market remains tight. Unemployment in November reached 3.9%, and 3.5% for the 25-64 age group (the preferred category for the BoI). Employment for this age growth increased by 3.6 thousand in November, following some decline since the peak summer months. Job vacancies have declined but remain elevated. Private sector wages have increased rapidly (6.5% y/y) while public sector wages remain frozen but await negotiations for a wage increase in 2023. Concern over an expansionary fiscal policy is mounting. Fiscal policy is rarely noted in the monetary decision, but the overall fiscal policy of...