Governor Yaron sounded very optimistic today, sees possibility of higher rates one year from now

ISRAEL - In Brief 07 Oct 2021 by Jonathan Katz

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Very optimistic tone from the BoIThe rate hold decision came as no surprise but the general tone was very optimistic with much stronger GPD growth forecasted this year (7% instead of 5.5% previous forecast) and remaining robust in 2022 (5.5%). Yaron sees the possibility of a rate hike one year from now, depending on activity and the inflationary environment (not dependent on the Fed, he said), although he sees inflation in Israel lower than in other countries which enables him to be patient. He appears uncertain regarding how transitory inflation will be. QE will come to an end and not be extended, unless there is a surprising surge in infections (unlikely). FX intervention will depend on the rate of growth and recovery: my take is that it will diminish if growth is in line with BoI forecast. Yaron is in favor of cancelling non-tradeable bonds, but details need to be worked out. The forward guidance was altered radically, with no longer mentioning additional accommodation (if necessary) but rather: The Committee will therefore continue to conduct an accommodative monetary policy for a prolonged time. The BoI macro forecast very bullishThe BoI growth forecast was revised cumulatively higher but 1%: from cumulative growth of 11.8% in the July to currently 12.9%. Growth is expected to reach 7.0% this year (previously 5.5%, partially due to CBS upward revisions) and 5.5% in 2022 (previously 6%). Unemployment (broad) is expected to reach 5.2% by end-2022 (previously 5.5%). Inflation will reach 2.5% this year (previously 1.7%) and 1.6% in 2022 (previously 1.2%). The rate forecast was revised to reflect a range of 0.1%-0.25% one year from now from the previous forecast of 0.1...