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Natwest See Risks Tilted To 50BP Increase Next Week

  • Natwest see the balance of risk tilted towards a 50bps increase compared to the near consensus view of 25bps.
  • With higher than expected economic growth, inflation yet to peak and a 3.8% drop in the ILS since the start of February, data argue for the BoI to be overly cautious on inflation as opposed to complacent.
  • Governor Yaron has already alluded to the risk to Israel's bond market funding from a contentious overhaul of the judicial system. Offering investors a higher return and demonstrating a commitment to its inflation target could help to limit these risks.
  • While Israel's inflation is at much lower outright level than other economies, tightening is justified by an overheating economy. Natwest still see value in paying the front-end of the ILS FRA curve.

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