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HSBC Expect BoI To Stay On Hold Until Q4

ISRAEL
  • HSBC now expect the BoI to keep rates unchanged on 27 May and to stay on hold in Q3 too, following recent upside inflation surprises and ongoing geopolitical risks. Previously, HSBC had pencilled in a 25bp cut for Q2 and a total of 100bp of easing in 2024, but they now think that the easing cycle, which started with a 25bp cut in January, faces delay and will only resume in Q4.
  • At 2.8% y/y in April, inflation remains in the BoI’s target range, but recent prints were above expectations. Inflation expectations have also risen since the start of the year. The BoI had previously flagged housing prices as a key upside risk to the inflation outlook and latest data suggest that this caution may have been warranted. To reflect recent upside surprises, HSBC raise their end-2024 and end-2025 inflation forecasts by 60bp each to 2.6% and 2.0%.
  • While price growth developments are of note, the rise in geopolitical uncertainty and Israel's risk premium are playing a more significant role in the BoI's decision to delay easing. For now, HSBC assume that cuts will resume in Q4, but the outlook remains highly uncertain, and the BoI could opt to remain on hold for longer.
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