Central Bank leaves rates unchanged in November

Latest bank decision: At its meeting on 25 November, 2024, the Central Bank decided to leave the interest rate unchanged at 4.50%.

Monetary policy drivers: The Central Bank likely judged that it was premature to cut rates given that headline and core inflation are both above the upper bound of the Bank’s 1.0-3.0% target range. On the flipside, hiking rates was not warranted either, as price pressures appear to have broadly stabilized since August, the fiscal stance is expected to tighten in 2025, and the economy continues to be hampered by the war.

Policy outlook: 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. All our panelists expect rate cuts in 2025, with forecasts ranging from one to four 25 basis-point cuts.

Panelist insight: On the outlook, Goldman Sachs’ analysts said: “we expect the BoI's cutting cycle to resume in Q1, although risks are clearly skewed towards a later cutting cycle. We do not expect the BoI to place a large weight on the weakness of activity data, as that weakness is driven primarily by supply constraints, particularly in the construction industry, while household consumption has largely recovered from the economic shock following October 7. Instead, the next cut will in our view be prompted by the external interest rate environment, particularly further Fed cuts.”

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