The Bank of Israel..
(photo credit: Ariel Jerozolimksi)
Investment houses expect the Bank of Israel to raise October interest rates by
the end of the month in light of heightened pressure to curb rising housing
prices and recent strong domestic economic data.
“The central bank will
feel under increasing pressure to supplement recent prudential measures to curb
rising house prices with additional policy rate hikes in the coming months,”
Credit Suisse analyst Ivailo Vesselinov said in a report this week. “We continue
to believe that the Bank of Israel will implement two further 25-basis-point
rate hikes to 2.25 percent by year-end.”
“Our central scenario had
envisaged that the first of these would be implemented at the end of October,”
“But given the recent strong domestic economic data and the
ongoing rise in housing prices, we see a risk that [Bank of Israel Governor
Stanley] Fischer could deliver a 25-basis-point rate hike at the next policy
meeting on September 27.”
Fischer would not rush to tighten monetary
policy aggressively at this stage, given the still-fragile nature of the global
economic recovery and widespread expectations that the European Central Bank and
the US Federal Reserve will keep their policy rates on hold for an extended
period, Vesselinov said.
Fischer left interest rates unchanged for
September after raising the benchmark rate at the end of July by a quarter-
point to 1.75%, the first increase in four months, in an effort to stem a surge
in housing prices.
Consumer prices in August rose by 0.5%, according to
data published by the Central Bureau of Statistics on Wednesday. Year-on-year
inflation stayed unchanged at 1.8% in August, above the mid-range of the
government’s price-stability target of 1% to 3%. Housing prices were up 1.7%
month-on-month in August, after a 1% month-on-month rise in July.
August CPI was an unpleasant surprise to the market and raises the chance of a
rate hike at the end of the month,” Citigroup analyst David Lubin said in a
report this week. “The rise in the CPI during the month of August was partly
thanks to a 1.7% rise in the housing CPI and a 0.9% rise in food prices.
Although the Bank of Israel is likely to be relatively unconcerned about rising
food prices (which is presumably thanks to the global rise in food inflation
during the third quarter), the housing market is of more concern to the central
bank, as Fischer has made clear on a number of occasions.”
consumer confidence and strong expectations about economic activity, Citigroup
also expects the Bank of Israel to raise the interest rate by 25 basis points to
2% at the end of the month.
“The only argument against a rate hike this
month is the strength of the shekel,” Lubin said. “But since the Bank of Israel
is used to the combination of hiking rates and buying foreign currency
simultaneously, we don’t think currency strength will be an obstacle.”