Discount Bank Predicts Interest Rate Cut in Israel by November
Einat Meir, head of the economic department at Discount Bank, presented her weekly economic review, focusing on global trends and Israel's economy. In the US, Meir noted mixed signals from Federal Reserve officials regarding potential September interest rate hikes, with some advocating for a raise if inflation doesn't moderate sufficiently, while others believe rates are in a good place. Market expectations currently price in a 58% chance of a September rate increase, influenced by strong August jobs data and robust service sector purchasing managers' index.
In the Eurozone, inflation rose to 3.3% in August, driven by energy prices, though core inflation moderated. Despite this, the European Central Bank is leaning towards a rate hike due to concerns about energy price impacts, with markets anticipating a 97% chance of a hike soon and two more by year-end.
Japan's yen strengthened significantly against the dollar, supported by rising real wages, expectations of a rate hike to 1.25%, and potential government pension fund investments. China's trade data for August showed rapid expansion in both exports and imports, leading to a growing current account surplus that could heighten trade tensions.
Domestically, Bank of Israel recently lowered its interest rate by 25 basis points to 3.25%, citing moderating inflation and moderate growth. Meir believes further inflation decreases will support additional rate cuts, and market expectations for future cuts are currently underestimated. Credit card purchase data for July indicated a slight slowdown in private consumption, with a 1.0% drop in total purchases, though the high-tech export sector continues to grow consistently.
Meir projects that Israeli government bonds will see another rate decrease in November, bringing the rate down to 3%. This projection comes despite markets currently pricing in less than a 50% chance of another cut. While two-year government bond yields saw a modest decrease following the recent rate cut, longer-term yields rose, influenced by increases in U.S. Treasury yields.
