Rates increased by 0.5% with a more dovish monetary statement

ISRAEL - In Brief 21 Nov 2022 by Jonathan Katz

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Policy rates increased by 0.5% today to a level of 3.25%. Previously, expectations were divided between a 0.5% and a 0.75% rate hike. We note that for the first time we the monetary announcement sounded a bit more dovish, in conjunction with the usual statements supporting tightening (economic activity remains strong, the labor market is tight and inflation is broad-based). We present some of the more dovish signals: “Monetary policy tightening and moderation of activity abroad are expected to lead to some slowdown in economic activity in Israel as well, and a number of indicators are showing signs of the beginning of such a process.” “The labor market remains tight and in a full employment environment, although the most recent data indicate some moderation. The employment rate among the prime working ages (25–64) remains high, but the most recent data show some decline”. This is the first time a monetary statement has noted “some moderation” “In the Committee’s assessment, the monetary tightening processes in Israel and abroad, and the moderation of demand alongside the easing of the supply chain difficulties and the decline in commodity prices, will act to moderate inflation.” “According to the Central Bureau of Statistics Business Tendency Survey, there was some increase in the financing constraints reported by small and medium businesses since August.” This is a new development. Increasing financing constraints could be a supporting factor in slowing tightening “According to data from August, wages increased and are above the precrisis trend, but in real terms, they are around the trend projected based on the precrisis trend." This appears to express less concern r...