Israel: Central Bank maintains rates in July
At its meeting on 8 July, the Central Bank decided to leave the interest rate unchanged at 4.50%.
The Bank likely judged that it was premature to begin cutting rates, given that the shekel weakened since the prior meeting and that both inflation and one-year inflation expectations are around the upper bound of the target range. On the flipside, hiking rates was not warranted either, as the economic recovery moderated in the second quarter and inflation is still within the Bank of Israel’s 1.0-3.0% target range.
The Central Bank’s own internal forecasts are for the policy rate to average at 4.25% in Q2 2025, implying only minor monetary easing over the next year. Our Consensus is slightly more dovish: Most panelists see further rate cuts later in 2024, though several now see rates on hold given persistent price pressures.
On the outlook, EIU analysts said:
“Ongoing currency volatility and its impact on inflation, coupled with signs that major central banks face renewed inflation concerns, mean that we expect only marginal further easing from the BOI in 2024. As inflation returns firmly to within the 1-3% target range, the policy rate will be cut further but will not return to its earlier lows before 2028.”