Even a few weeks ago, there was consensus in the market around 2025, when most analysts communicate with the expectations of the Bank of Israel: one or two interest rate discounts throughout the year, and annual inflation by 2.6 %. But in recent weeks, positive data on the economy has started in accumulation, and analysts are now divided. Producers are now expecting more interest rates, and may start early in April, and expand the scope of inflation.
The ceasefire and hostage deal that entered into Sunday strengthened expectations that 2025 would be good for the Israeli economy. The AVIV 35 Tel Index has increased by about 6 % since the beginning of the year. The risk premium has decreased in Israel, as shown in credit credit swap for 10 years (CDS), in the past few weeks. Indeed, since last October and the drone attack by Iran, the CDs of Israel decreased by 30 %. The return on Israeli government bonds fell in return.
Shekel has been impressive, as the SEKEL-Us exchange rate has decreased by 7 % since August, and Shekel has become at a peak for two years against the main trading coins basket in Israel. Yesterday, the actor Shekel International rate decreased to $ 3.58/dollars. The strongest shekel means cheaper imports, and perhaps low inflation.
Reading the consumer price index for the month of December, which was released last week, showed an annual inflation by 3.2 %, which compares with 3.4 % expectations. Experts unanimously, in the coming months, we will see an increase in the rate of inflation, and even approaching 4 %, after an increase in Arnna (local property tax), water and electricity, and the increase of 1 % in the value -added tax rate, higher, higher purchase of car tax, and other Government measures that will strike the pockets of the Israelis. So inflation may rise, but the available income will decrease, which is subject to private consumption.
Three scenarios for interest rates
These positive numbers were mainly forced analysts to update their predictions, whether for inflation or interest rates. The 2025 unanimous inflation rate forecast is now 2.4-2.8 %, and the scope of expectations has expanded for the number of interest rates, from 1-2 to 1-3.
Three possible scenarios show a comparison between analysts’ expectations. The first, from the Bank of Israel, sees discounts in interest rates one or two throughout the year, and annual inflation by 2.6 %; The second, which is shared by Hapoalim, Bank Discount, and Harel Insurance Company, imagines two interest rates and an enlarged 2.4-2.8 %; The third scenario is common for Mizrahi Tefahot, Leader Capital Markets, and Meitav, which sees three interest rates and 2.4-2.7 %.
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The most optimistic expectations of the chief economist in the capital market, Jonathan Katz. It is estimated that the Bank of Israel can reduce the interest rate three times throughout the year, to 3.75 %, and sees the first reduction that will come in April.
“The main shift at the timing of the first pieces,” Katz says in his updated forecast. “It now seems as if the Bank of Israel will achieve a preliminary discount not before April, as soon as it sees moderate inflation elements after taxes at the beginning of the year.”
Katz expects the Israeli economy to improve steadily due to the currency of strengthening and alleviating restrictions on the offer, including the return of foreign airlines and the high vacancies. “Inflation at the present time is mainly from government measures and housing components. Bank of Israel is very concerned that there is an excessive request as the economy recovers from the war, but at the same time we will see the various risk installments, and these are if the main criteria that the Bank of Israel did not reduce interest rates “.
On the contrary, a strategic expert on the bank market said that there is still a “state of great uncertainty about inflation and political geographical developments.” Cheving indicates the fact that inflation would be higher than he was initially believed. “The high rents have accelerated, the input prices have increased sharply. With these factors, wages continue to rise by 5-6 % annually, and the labor market is very narrow.”
So Cheving estimates that inflation will be 2.8 % this year. At interest rates, he sees discounts only throughout the year. “The market is currently expecting a discount in July, and that the Bank of Israel will achieve discounts in interest rates completely during the year.”
The inflation will be released, then falls
Katz emphasizes that current expectations can change if the consumer price index for January is less than expected. “The monthly increase in the index is expected to be 0.4-0.5 %, which puts the inflation rate for 12 months at 3.7-3.8 % reduces the interest rate in April,” he writes.
From the point of view of Cheer drier, in order for the interest rate to come early, we will have to see a positive surprise in inflation. “The Bank of Israel will want to know the acceleration of inflation in January and what happens after the high prices, which means that the subsequent consumer price index readings will be important as well.”
It was published by Globes, Israel Business News – En.globes.co.il – on January 21, 2025.
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