Israeli Monetary Policy, November 2022

At its meeting on November 21, the Bank of Israel (BoI) raised its key rate from 2.75% to 3.25%, the highest level since 2011 and means that rates have risen by 315 basis points this year.

The decision to raise was again prompted by a desire to ease broad-based price pressures as inflation this year exceeded the Central Bank’s target range of 1.0% to 3.0%. Moreover, the decision of the Central Bank could be aimed at supporting the shekel and cooling the housing market. Low unemployment and robust economic activity provided the Bank with an opportunity to toughen its stance.

In its communiqué, BoI suggested that interest rates would continue to rise in the future. This is in line with our experts’ forecasts, which suggest an additional tightening of around 40 basis points next year.

Assessing the outlook for monetary policy, analysts at Goldman Sachs said:

“We think that with the weakening of the shekel during this year, it will be much more difficult to return inflation to the target level without exchange rate support. Given our inflation forecast and pressure on the exchange rate, we forecast further rate hikes from the Bank of England, reaching a final rate of +4.00% next year.”

The next consensus forecast will be published on 29 November.