Senior Economist Warns of Uncertainty Following Bank of Israel Rate Cut
Ophir Klein, head of economics and research at Harel Insurance and Finance, has issued a warning regarding the future direction of interest rates following the Bank of Israel's recent decision to lower its benchmark rate for the third consecutive time. While the rate was cut by a quarter percentage point to 3.25%, Klein suggests the path forward is now less clear, anticipating a pause in rate adjustments for at least the next two Bank of Israel decisions in October and potentially November.
The primary risk to this forecast, according to Klein, is a potential interest rate hike in the United States, which could limit the Bank of Israel's future maneuvering room. Despite the recent cut, Klein maintains his forecast for the interest rate in six months, at the end of the first quarter of 2027, to remain at 3.0%.
Klein also noted the impact of the Finance Minister's decision to halve the fuel excise tax until the end of October, which he expects will lead to a 0.3% decrease in the September inflation index. His forecast for the next 12 months remains around 1.9%, close to the Bank of Israel's target, assuming a higher inflation rate in November after the temporary tax reduction ends.
In contrast to the domestic situation, international economic indicators present a more complex picture. A strong US employment report has raised expectations of a potential interest rate hike by the Federal Reserve next week, with markets anxiously awaiting the upcoming consumer price index report. In the Eurozone, an interest rate hike on Thursday is considered almost certain, though the key question is whether it will be the last for the year. Global oil prices are nearing $100 per barrel due to tensions in the Persian Gulf, further fueling concerns about persistent inflation and higher interest rates worldwide.
Domestically, July credit card purchase data showed a slight 1% decrease from June, with preliminary August figures indicating similar purchase levels, suggesting stability in private consumption without clear signs of acceleration. Recent wage data shows a mixed trend, with average wage growth slowing in July after a significant increase in June, while the number of available jobs saw only a modest rise.
