Bank of Israel hikes rates 50 bps vs 50 bps expected

  • Prior was 0.75%
  • The benchmark rate hiked to 1.25% from 0.75%
  • Economy is experiencing high growth and a tight labor market
  • Inflation is ‘well above’ the upper bound of the target range
  • Notes that expectations for three years out have converged to midpoint of the range
  • Forecasts 5% growth in 2022 vs 5.5% prior. Sees 3.5% next year
  • Expects inflation at 2.4% in 2023
  • Forecasts benchmark rate at 2.75% in one year vs 1.50% previously

Some economists were looking for just 25 basis points. Israel’s  inflation  is expected at 4.5% this year, which is high but below most developed economies.

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