Mizrahi Tefahot Bank: Interest Rate Forecast for Israel Worsens

Yoni Fanning, chief strategist at Mizrahi Tefahot Bank, has released a weekly review focusing on the bond market, the US fiscal deficit, the increased probability of an interest rate hike by the Federal Reserve, and the rise in oil prices, all of which directly impact the likelihood of an interest rate cut in Israel.

"USA: The rise in long-term yields brings into question the stability of the government bond market. Global liquidity in long-term channels is constrained by significant fiscal deficits in the West and high demand for AI investments. A volatile trading week ended in stability following the administration's commitment to tilt debt toward shorter terms, though it is doubtful this will suffice given the fiscal deficit."

The global diesel shortage implies future inflationary effects. Meanwhile, the US real estate market shows significant signs of a slowdown against the backdrop of high yields. Were it not for the slowdown in demographic growth, inflationary concerns would be higher, but for now, they remain contained.

Israel: Interest Rate Outlook

From a local perspective, the increased probability of a US rate hike, rising energy prices, and the Governor’s emphasis on local uncertainty have led to a moderation in expectations for an interest rate cut in the coming week.

Local labor market data, however, points to some relief. Combined with an increase in the supply of foreign workers, we expect to see less local wage pressure.

Economic activity data for July showed relative stability according to the Bank of Israel's index, following strong GDP figures earlier in the week. Recent credit card data showed some weakness in August, likely a result of the increase in outbound travel.

In the UK, July price index data remains somewhat inflationary, but in our assessment, stability in the labor market should help moderate inflation.