The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, announced this afternoon that it is keeping the interest rate unchanged at 4.5%. Economists were split on whether the interest rate would remain unchanged or cut.
In January the Bank of Israel cut the rate from 4.75% to 4.5% but in its two meetings since it has declined to lower the rate further to stimulate Israel's war-affected economy.
In explaining its decision the Bank of Israel said, "Economic activity and the labor market continue to recover gradually. Alongside this, the extent of geopolitical uncertainty has increased, reflecting a relatively high risk premium for the economy."
The Bank of Israel research department sees inflation of 2.7% in 2024, up from the previous forecast of 2.5%, and inflation of 2.3% in 2025, up from 2%. The Bank of Israel sees the interest rate at 3.75% in the first quarter of 2025 - its previous forecast was 3.75%-4%.
The Bank of Israel research department has also revised its growth forecast. It said, "GDP contracted by 5.6% in the fourth quarter of 2023, compared with the third quarter. Over the year as a whole, GDP grew by 2%. The GDP growth was in line with the research department’s forecast from January 2024. The research department’s assessment is that GDP will grow by 2% in 2024 and by 5% in 2025. In view of the war, the forecast is characterized by a high level of uncertainty."
The Bank of Israel also revised its fiscal deficit forecast for 2024 upwards from 5.7% to 6.6%, as built into the revsied 2024 budget.
Published by Globes, Israel business news - en.globes.co.il - on April 8, 2024.
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