Israeli Economist Predicts Interest Rates to Hold Steady Amid Inflation Concerns

An unnamed senior Israeli economist forecasts that the Bank of Israel will maintain its benchmark interest rate unchanged at the upcoming monetary policy meeting. This decision is attributed to several factors, including the proximity to elections, an increase in the country's risk premium, a recent depreciation of the shekel, and global interest rate hikes. The economist anticipates a slight decrease of approximately 0.3% in Israel's September consumer price index, partly due to lower airfare costs after the summer and a reduction in excise taxes, alongside seasonal food price decreases. However, rising costs for vegetables, education, and housing are expected to offset these declines. Despite potential fluctuations in the index, the overall inflation rate is projected to approach 1.8%.

Economic activity in Israel shows continued moderate growth, with businesses reporting improved performance. While official third-quarter growth figures are pending, preliminary data indicates positive, albeit slower, expansion compared to the previous quarter. Real credit card purchases rose 3% in August, and consumer confidence saw a slight improvement in September, with households more optimistic about their personal finances than the national economic situation. Business sentiment surveys for September reflect a positive outlook across most sectors, reaching the highest levels this year, particularly in industry, commerce, and services. However, businesses are less optimistic about future activity and plan only modest increases in staffing. Notably, business expectations for inflation over the next year have fallen to 1.9%, the lowest since 2022, suggesting recovery is not accompanied by sharp price increase expectations.

International economic developments include a temporary easing of sanctions on Russian diesel sales, potentially moderating global fuel prices and transportation costs, though it doesn't address refining capacity issues or trade route risks. The Houthi attacks on a Saudi airport highlight the dangers of escalating conflict, which could threaten energy infrastructure and Red Sea trade. In the US, upcoming inflation data is a key focus, with expectations of a significant rise in the consumer price index due to higher gasoline prices, though core inflation is anticipated to be more moderate. The Federal Reserve's Beige Book will also provide insights into corporate costs and pricing power ahead of its interest rate decision.

Spain is facing potential political instability with early elections called, which could lead to a reassessment of risk for Spanish government bonds. In Poland, the central bank has kept interest rates steady at 3.75% despite rising inflation, but has not ruled out a hike if inflationary pressures broaden. China's economy is expected to show continued growth, supported by AI-related industries, while India's central bank has raised its interest rate to 5.5% to combat rising energy and food prices.