Bank of Israel keeps rate at 4.5%

The Bank of Israel cited uncertainty due to the war and rising inflation as reasons behind its decision.

The Bank of Israel Monetary Committee has announced that it has kept the interest rate unchanged at 4.5%, as expected. This is the seventh successive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January. The Bank of Israel said, "In view of the continuing war, the Monetary Committee’s policy is focused on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.

The Bank of Israel added, "The continuing geopolitical uncertainty continues to pose difficulties for economic activity and is delaying the economy’s return to the level of activity that characterized it prior to the war."

On inflation the Bank of Israel said, "Inflation in the past 12 months is 3.5%, above the upper bound of the target, and it is expected to increase in the coming months. Inflation expectations from the various sources for one year and beyond are within the target range, in its upper portion."

On the shekel the Bank of Israel continued, "Since the last interest rate decision, the shekel has strengthened, by 0.9% against the US dollar, by 6.4% against the euro, and by 3.7% in terms of the nominal effective exchange rate.

"The economy grew by 3.8% in annual terms in the third quarter, but the negative gap relative to the trendline remains, mostly due to supply constraints. The most recent indicators of economic activity provide a mixed picture regarding the fourth quarter, with a slight tendency to weakening. The labor market remains relatively tight, despite some moderation in recent months

"In the housing market, the increase in home prices moderated. However, constraints on activity in the construction industry remain significant."

Finally, the Bank of Israel mentioned the country's high risk premium, "The economy’s risk premium, as measured by the CDS spread, declined significantly during the reviewed period, although it remains very high relative to the prewar period."

Published by Globes, Israel business news - en.globes.co.il - on November 25, 2024.

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