Senior Israeli Economist: Forecasts for Inflation and Interest Rates

Alex Zabezhinsky, chief economist at the Meitav investment house, has released his weekly economic review, covering record business credit expenditures in Israel, fuel price trends, inflation, interest rate adjustments, and global market conditions.

"Israel: The growth rate of business credit has reached a record level. While this supports economic activity in the short term, a significant portion has been directed toward construction and real estate, which increases financial risk."

Following the rise in fuel prices, the firm has raised its inflation forecast for the next 12 months to 2.1%.

"We still estimate that the Bank of Israel will lower the interest rate to 3%. Institutional investor exposure to foreign currency and foreign assets increased significantly in June. In our assessment, as long as there is no further deterioration in the security or political situation, institutional investors will not significantly increase their foreign currency exposure beyond current levels," Zabezhinsky stated.

Given the recent rise in yields in Israel and globally, and considering bond performance in a falling-to-stable interest rate environment, the firm recommends returning to medium-to-long duration, favoring longer duration in shekel-denominated assets and shorter duration in inflation-linked instruments.

Globally, Purchasing Managers' Indices (PMI) indicate continued expansion in industrial activity and improvement in the services sector. In most countries, June inflation figures were lower than expected. "We estimate that the Fed and other central banks will leave interest rates unchanged this week. Risks in the bond market have increased, but we believe the current yield levels in the US market provide adequate compensation for these risks," the report concludes.