"Markets are now likely to extrapolate the future policy path and we move Israel sovereign credit to a 'dislike stance'." They added that recent developments pointed to "continued uncertainty" in Israel and for the shekel currency to weaken and borrowing costs to rise as investors attach a higher risk premium. "In our adverse scenario we think that growth could weaken significantly to 1.6% (year-on-year) in 2024 with inflation remaining significantly above the Bank of Israel's tolerance band." "For now, we keep our call for one more 25 basis point hike to 5% at the BoI's September meeting, but risks to the rates outlook are now shifting to the upside again." Reporting by Marc Jones and Steve Sheer in Jerusalem, additional reporting by Ari Rabinovitch; Editing by Amanda CooperOur Standards: The Thomson Reuters Trust Principles.

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Persons: Morgan Stanley, Benjamin Netanyahu, Morgan, Marc Jones, Steve Sheer, Ari Rabinovitch, Amanda Cooper Organizations: Bank of, Thomson Locations: Israel, Jerusalem