Rates up 0.25% to 4.75%

ISRAEL - In Brief 22 May 2023 by Jonathan Katz
Policy rates increased today by 0.25% to 4.75%, in line with consensus. Inflation remains high and broad-based, core inflation has accelerated, but the BoI is looking at the annual rate of inflation in the past 6 months and 3 months and notes moderation (3.9% rate for the last three months, and downward trajectory). Inflation expectations are well anchored withing target. Economic activity remains strong but some indicators point to moderation. The labor market is tight reflecting full employment but job vacancies are on a downward trend. We think the main reason for only a 0.25% rate hike is that monetary policy is already restrictive (vis-à-vis inflation expectations) and growth is expected to moderate globally and in Israel. The announcement stresses that policy going forward will be data dependent. Assuming May’s CPI comes in at 0.6% m/m, the y/y rate will accelerate to 5.1% from 5.0% (headline). Some forecasters are expecting 0.7% m/m. Another rate hike in early July appears likely unless we get a downward inflation surprise, much softer economic data or a stronger shekel.

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