Chances of Israel Rate Hike in May Have Increased, Hapoalim Says

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Chances that the Bank of Israel will raise the benchmark interest rate in its decision this month have increased after positive economic results, economists at one of Israel’s largest lenders said on Sunday.

“The data published in Israel and the U.S. last week increase the chance that the Bank of Israel interest rate will be raised this month to 0.5 percent,” Bank Hapoalim said in a note to clients.

The central bank held its benchmark at 0.25 percent on April 8, as it has done since November, when it raised borrowing costs for the first time since 2011.

Hapoalim economists also said:

  • The interest rate is still markedly lower than inflation expectations for the coming year and therefore negative in real terms, even if it’s raised
    • The situation isn’t expected to change anytime soon, since more and more central banks globally are suspending plans to raise rates
  • Israel government deficit expected to be 3.5% of GDP
    • Level exceeds target, but it’s possible to “live with it” in short term
  • Taxes can be expected to rise in 2020 because it will be difficult to cut spending

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