Israel: Central Bank maintains rates in August
At its meeting on 28 August, 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 headline inflation, core inflation, and one-year inflation expectations are close to or above the upper bound of the Bank’s 1.0-3.0% target range. On the flipside, hiking rates was not warranted either, as the latest data shows that the economy continues to be hampered by the war.
There was no explicit forward guidance in the Central Bank’s press release, with future inflation, exchange rate movements and the developments of the war likely to play a key role in determining monetary policy ahead. A small majority of our panelists see one 25-basis-point rate cut later in 2024, though several now see rates on hold given persistent price pressures.
On the outlook, Goldman Sachs’ analysts said:
“The upcoming CPI prints will in our view be particularly important for Israeli rate prospects as we think headline inflation returning to the BoI’s target range represents a necessary, but not sufficient, condition for future rate cuts. That said, our inflation forecasts remain relatively benign and activity data has disappointed – most recently Q2 GDP surprised considerably to the downside – which argues in favour of a cut sooner rather than later. However, with the BoI repeatedly placing the greatest emphasis on geopolitical uncertainty in its communication and with regional tensions remaining elevated, it is difficult to be confident about the likely timing of the next cut.”