(Bloomberg) — The Bank of Israel is set for a close interest-rate call on Monday, with analysts almost evenly split between those predicting a cut to boost the war-damaged economy and those seeing monetary authorities keeping policy steady to protect the shekel.
A narrow majority of economists surveyed by Bloomberg — nine out of 17 — say the central bank will hold its base rate at 4.5% for a second consecutive Monetary Policy Committee meeting. Citigroup Inc. and JPMorgan Chase & Co. are among them.
The other eight, including Goldman Sachs Group Inc., see the MPC cutting the rate by 25 basis points to 4.25%.
The consensus shifted toward a hold last week after Iran vowed revenge against Israel for a strike on Tehran’s consulate in Damascus. The attack killed at least 13 people, including two Iranian generals. Israel put its forces on high alert. Israeli stocks dropped, while the shekel suffered its second-worst week this year.
The currency rebounded by 1.1% to 3.72 per dollar as of 9:40 a.m. in Tel Aviv on Monday, in part because Iran didn’t retaliate over the weekend.
The rising tensions contributed to Israel’s inflation outlook worsening in recent days, as measured by break-even rates. Two year break-evens have climbed to 3.17%, above the central bank’s target range of 1% to 3%.
“The increase in the risk premium of all Israeli assets combined with heightened inflation expectations, will likely place the Bank of Israel in a cautious position that will lead to a postponement in rate cuts,” said Rafael Gozlan, chief economist at Tel Aviv-based IBI Investment House.
The central bank lowered rates for the first time since the height of the covid pandemic in January, and in late February left them unchanged because of concern that inflation might accelerate as the war against Hamas in Gaza continues and the government ramps up spending on defense.
For now, inflation remains low. The year-on-year rate dropped to 2.5% last month from 4.1% in August.
“Markets have reduced the probability of a cut to 30%, but we think that chances are higher because inflation has entrenched within its target range,” said Gil Bufman, chief economist at Bank Leumi, Israel’s biggest lender by market valuation. “This could allow the bank to maintain a real interest rate of more than 1% even with a slight cut,” he said, referring to inflation-adjusted rates.
One concern for markets is the fiscal impact of the war. This year’s budget envisages a deficit of 6.6% of gross domestic product, a shortfall that would be among the biggest for Israel this century. It may turn out to be even wider if the conflict in Gaza is prolonged or if tensions with Iran and Lebanon-based Hezbollah — the Islamic Republic’s main proxy militia — worsen.
Amir Yaron, the Bank of Israel’s governor, has repeatedly said he’s concerned about fiscal policy and that it will be an important factor in determining monetary policy.
Israel’s current inflation rate “can be misleading” and “doesn’t necessarily indicate what’s in store for the future,” said Victor Bahar, chief economist at Bank Hapoalim, the second-biggest Israeli lender.
The central bank is due to release new macroeconomic forecasts after the rate decision. Jonathan Katz, a strategist at Leader Capital Market, says the bank will probably “stress its concern over a more expansionary fiscal policy.”
Katz expects the central bank’s inflation forecast for this year to rise toward 3%, up from 2.4% in January. He also sees the interest-rate outlook climbing to 4%-4.25% from 3.75%-4%.
The central bank will need to weigh rising inflation expectations against an uneven economic recovery from the first few weeks of the war. Many industries, including construction and tourism, are still suffering, even as credit-card spending rebounds.
“The economy is far from returning to its full growth potential,” said Alex Zabezhinsky, chief economist at Meitav DS Investments. “Keeping interest rates at a high level may reduce market volatility in the short term, but increase the risk to the economy and market stability moving forward.”
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
