The US dollar fell sharply against the background of the “Moody’s” agency reduced the credit rating of the United States, which immediately reflected on the Israeli markets.
The dollar decreased by 0.3% to 3.54 forms at the beginning of the week’s trading, while the euro rose 0.7%, exceeding the barrier of 3.99 forms, which reflects the weak confidence in the stability of American monetary policy, but in the local Israeli context, these fluctuations revealed deeper imbalances in the economy.
Survival on the bank of Israel amid the acceleration of inflation
Despite the announcement of the growth of Israeli GDP by 3.4% annually in the first quarter of 2025, and the increase of the output of the individual by 2.2% after two years of stagnation and shrinkage, the inflation rate for April surprised the markets – according to the Israeli newspaper Calist – recording a monthly increase of 1.1% compared to expectations at 0.6%.
The annual inflation reached 3.6%, which put the Bank of Israel in a narrow angle, as the reduction in the interest rate is no longer on discussion, but its freezing has become at the level of 4.5% is the weighted option at the next meeting.
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According to the chief economist in “Mitwa”, Alex Zabingski, the current inflation environment “does not allow the rate of interest rates”, unless in the event of a sharp slowdown in consumption, stressing that expectations indicate that the interest rate during the next 12 months will be 4.0%. As for the future estimates of the markets, they indicate an expected benefit at 3.9%, with a gradual erasure of the reduction expectations that prevailed at the beginning of the month.
Internal turmoil despite economic growth on paper
Although the Israeli government was quick to show off the growth of local product, the reality of the market shows a flagrant contrast, especially after the sharp increase in rental prices by 4.2%, compared to 3.9% in the previous month and 3.1% in January, according to the newspaper.
This acceleration in rents prompted the “Lider” analysts to raise their expectations for real estate prices to 4.0%, after it was 3.3% last month.
Lider data indicates that the changes in the methodology for calculating aviation tickets, since September 2023, have increased the fluctuations in this sector, which creates a false image about the enlargement of travel.
According to their estimates, May will witness a 12% decrease in the prices of foreign trips, which will push the price index to rise by only 0.1%, while the June index is expected to remain stable, and the July index ascends 0.5% for seasonal reasons, the newspaper adds.
In this context, “Lider” says that the monetary policy of the Bank of Israel has become greatly restricted, noting that any reduction in the interest “will not happen before August”, which reflects an implicit fear of the widening gap between unbridled inflation and limited tools available to control it.
Israel pays the price of Washington’s turmoil
The report also indicates that the reduction of the US ranking exacerbated the pressure on the dollar globally, as the “dollar index” decreased by 0.9% to 100.2 points, while the euro jumped by 1% to $ 1.128, and the pound sterling rose 0.9% to $ 1.339.
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This weakness in the American currency – the newspaper continues – is accompanied by the deepening of the crisis of confidence in the American debt tools, as experts, such as George Saravilus of “Deutsche Bank”, believe that the markets have begun to rethink “how much they are willing to finance the American deficit.”
Israel, which is financially and economically related to the American market itself is now vulnerable to a double wave of uncertainty, external due to the confusion of fiscal policy in Washington, and the interior due to the imbalances of inflation, the freezing of interest and the high cost of living, according to Calist.
While the government is trying to market growth numbers as an achievement, other data confirms that the real economy is in a state of increased pressure that may explode at any moment.
