Interest Rates Hold Steady: Bank of Israel Keeps Rate Unchanged at 4.5%

Bank of Israel/ Wikipedia

The Monetary Committee of the Bank of Israel decided to leave the interest rate unchanged at 4.5%

“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,” said the Bank of Israel. “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.”

Also in view of the continuing war, the Bank of Israel’s 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 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. According to the most recent indicators, the economy is continuing to recover at a moderate pace, but the negative gap relative to the trendline remains. In the financial markets, Israel’s risk premium declined, although it remains high.

The Bank of Israel stated that while October’s CPI rose 0.5%, annual inflation remains above the target range at 3.5%. Core inflation is stable, but geopolitical tensions, supply chain disruptions, and exchange rate volatility pose significant risks to future price stability. Forecasters expect a temporary inflation spike early next year due to the VAT increase, followed by a moderation. Inflation expectations have declined but remain elevated. The Committee remains vigilant and will take necessary steps to ensure price stability.

While recent economic data has shown some positive signs, significant uncertainties and risks remain. Global growth is uneven, with the US economy showing resilience while the Eurozone and China face challenges. Inflation is moderating but remains above target levels. Central banks are navigating a complex landscape, balancing the need to stimulate growth with the risk of fueling inflation. Geopolitical tensions and trade disputes continue to cast a shadow over the global economy.

Globally, the purchasing managers indices (PMI) for September indicated a mixed sentiment. In the US, the services PMI continued to increase, signifying expansion, while in the Eurozone it declined, indicating expectations of a contraction in activity. World trade increased by about one percent in August, after remaining unchanged in the previous month. Since the previous interest rate decision, oil prices declined by about 5 percent, with a barrel of Brent crude trading around $75. There was a mixed trend in global equity markets, with significant increases in the US markets. In the US, third quarter growth was 2.8%, indicating strength of the American economy led by strong private consumption, although the labor market continues to cool.

In the eurozone, said the Bank of Israel, third quarter growth surprised to the upside, but looking forward, the recovery in Europe is expected to remain moderate. In China, third quarter growth also surprised to the upside, but the most recent data remain relatively weak. Inflation trends indicate convergence toward the central bank targets. In the US, annual inflation remained unchanged, and the Consumer Price Index increased by 0.2% in October, reaching an annual rate of 2.6%. The Core CPI increased by 0.3% in October, with the annual pace of increase reaching 3.3%.