Sharon Wrobel is a technical reporter for The Times of Israel.
The Bank of Israel on Monday raised the benchmark interest rate for the seventh straight meeting, raising its key interest rate through 50 fundamental issues to 3. 75 percent, the point since 2008, as the central bank steps up efforts to control emerging inflation in recent years. month.
The central bank’s financial committee raised the benchmark rate to 3. 75% from 3. 25%, in line with forecasts by top economists. more than 300 fundamental issues in 2022, as the Bank of Israel seeks to return inflation to government diversity from 1% to 3% of diversity target.
Despite these measures, Israeli inflation accelerated to 5. 3% in November over the past 12 months, driven by skyrocketing house and food prices.
“High inflation implies greater uncertainty and difficulty in decision-making at the family and business level, weighs on economic behavior and has a negative impact on expansion and welfare, mainly among the weakest strata,” the Bank of Mexico said. Israel’s governor Amir Yaron said in remarks at a press conference Monday in Jerusalem. “Moreover, the more entrenched inflation becomes, the harder it is to eliminate it, and eventually the required interest rate will be even higher. “
Yaron welcomed the incoming new government and, acting as an economic adviser to the government, warned of the potential threat of exuberant budget demands made through its coalition partners. The agreements signed with far-right and haredi partners are expected to generate social benefits for the ultra-Orthodox, whose employment rate is low.
“Budget discussions will soon begin, concrete proposals will be put on the table and the government’s intentions will be clarified,” Yaron said. “It is that the new government acts with the obligatory nature of fiscal policy, especially of new expenditures that are not aimed at selling sustainable growth. “
In his first act in office, Finance Minister Bezalel Smotrich on Sunday called on ministry officials to raise taxes on single-use plastic utensils and sugary drinks. a Treasury.
“I have said in the afterlife that one of Israel’s strategic assets is the low debt-to-GDP ratio of its economy, which has served us well in the COVID-19 crisis,” Yaron said. “It is vital that Israel’s economy cannot take for granted the highest consideration of rating agencies and foreign monetary institutions. “
“As a small open economy interacting with the world’s largest economies, the continued confidence of markets and entities in the global economy is very vital to the Israeli economy and to the lifestyles of a sound and secure monetary and business environment. ” he said.
The Bank of Israel cited economic activity in the Israeli economy, a tight hard job market and emerging inflation as the main reasons for raising its key rate.
“Economic activity in Israel remains solid, but the rate of expansion appears to have slowed compared to the first part of 2022,” the central bank said. . “
In its statement, the central bank noted that speed prices have risen at a particularly high rate over the past 12 months, with an increase of 20. 3 percent. Meanwhile, housing starts and construction rents remain higher than in the past 12 months, and the number of home purchase transactions and the volume of mortgages contracted continues to decline, the Bank of Israel said.
“While housing costs continue to rise at a very high rate, knowledge about home starts, permits, the number of completed transactions and the volume of new mortgages are a moderation in the market,” Yaron said. “It can be assumed that those factors, to the extent that they persist, will be reflected in costs in the future. “
Yaron noted that inflationary tension is expected to continue over the next two months, while the central bank’s financial committee noted early signs of a slowdown in the value expansion momentum.
“The continued downward trend in oil prices, given the decline in global demand, and the easing of supply chain difficulties continue to contribute to the fall in tradable prices, albeit with some delay and depending on developments. “rate,” the central bank said.
Along with the announcement of the interest rate decision, the Bank of Israel’s research team also revised its forecasts for economic indicators on Monday. Central bank economists now expect inflation to decline to 3% next year, from 2. 5% forecast in October, and to 2% in 2024. The economy is expected to grow at an annual rate of 2. 8% in 2023, revised from 3% in October and 3. 5% in 2024.
“The upward revision of inflation forecasts for 2023 was basically affected by the depreciation of the shekel and expectations related to wage increases to be decided in public sector wage agreements,” said Gil Bufman, lead economist at Bank Leumi.
Since the last interest rate resolution in November, the shekel has weakened by 1. 6% against the US. The U. S. economy and 5. 8% against the euro, the central bank wrote in its statement.
Looking ahead, the bank’s research arm expects additional interest rate increases, with the policy rate expected to reach 4% next year, up from 3. 5% in its previous estimate.
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