We expect a 0.25% rate hike today

ISRAEL - In Brief 22 May 2022 by Jonathan Katz

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Economic conditions support a 0.25% hike Inflation has accelerated to 4.0% y/y with core at 3.4%, above target. Inflation is more broad-based, including both goods and services. Economic indicators point to fairly robust growth and near-full unemployment. The negative GDP print is a correction following surging growth in the previous quarter. Previously we had considered a sharper rate hike of 0.4%, but recent shekel appreciation and lower inflation expectations in the bond market should support a more modest rate hike of 0.25%. Nevertheless, we expect steady monetary tightening to continue to a level of 1.75-2% one year from now. GDP declines, but not really indicative of activity GDP growth reached -1.6% in Q122 mostly due to a sharp increase in imports, and a modest decline in private consumption, and a decline in hi-tech exports, following sharp growth in the previous quarter. This GDP contraction follows 15.6% growth in Q421. Domestic demand (private consumption, public consumption, and gross investments) increased by 8.3% in Q121, indicative of steady growth. Annual growth from Q120 to Q122 reached 4.4%.FX: The shekel appreciated last week by 1.6% against the dollar, 0.1% against the Euro, and 0.5% against the basket of currencies. We note that appreciation last week occurred despite continued market volatility. We reduced our inflation forecast modestly to 0.7% m/m in May and 0.2% m/m in June as a result of recent shekel appreciation, although food prices are expected to accelerate. Economic indicators continue to point to steady growth Unemployment declined in April to 3.1% from 3.4% in March, but this print is not seasonally adjusted. Generally, the labor mark...