For the first time in two years, the Bank of Israel is expected to raise interest rates Monday, from the current rate of 0.1%.
Israel Today reported that a multi-step rise in interest rates is expected, with rates rising about 0.25% with every meeting of the Monetary Committee, such that by the end of 2022 the interest rate could reach 1.75%.
The shifting trend could have far-reaching implications - for households, the capital market, the foreign exchange market, and more.
Most economists expect the interest rate to rise today (Monday) to 0.25%, while some expect a sharper increase to 0.5%. At the same time, most forecasts predict a continued rise in interest rates over the coming months.
The main reason for the expected trend of rising interest rates is the high inflation recorded in the economy, which has exceeded the target set by the Bank of Israel and reached 3.5% in February. According to forecasts, the peak is still ahead, with inflation expected to worsen in the coming months and reach 4.3% in June, before leveling off.
Rising prices are not unique to Israel but are a global phenomenon, which began with the exit from Corona restrictions and the increased demand for various raw materials, further constrained by the war in Ukraine.
By comparison, US inflation has already crossed the 7% threshold, and the US Federal Reserve has already begun a round of interest rate hikes, with rates expected to rise at least six more times this year. The interest rate in the UK has also risen three times in a row and now stands at 0.75%.
Another consideration that supports a rise in interest rates is the rising housing prices in Israel, with a 13% yearly increase in apartment prices reported recently. The low-interest rates provide favorable financial conditions for obtaining mortgages, thus further fueling demand for apartments, and leading to a significant rise in prices. Higher interest rates could help reduce the tension in the housing market by lowering demand.