The Bank of Israel Monetary Committee has announced that it has kept the interest rate unchanged at 4.5%. This is the sixth 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 expects the interest rate to remain unchanged at 4.5% until the third quarter of 2025.
The continuing policy of monetary restraint is in line with the economists' expectations due to the geopolitical uncertainty and concerns that further developments will push prices higher.
The Bank of Israel is concerned about rising inflation and said,
"We have seen an increase in the inflation environment in view of the supply limitations in the economy. The increase in the pace of inflation is broad, and is reflected in both the nontradable and tradable components."
The Bank of Israel added, "In view of the continuing war, the Monetary Committee’s policy is focusing 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 research department also again cut its growth forecast for 2024 from 1.5% to just 0.5% and its GDP growth forecast for 2025 from 4.2% to 3.8%.
The Bank of Israel said, "The latest indicators of economic activity point to some increase in activity in the third quarter, although the level of activity remains distant from the trend line. The labor market remains tight, mainly in view of the supply limitations."
The Bank of Israel research department forecasts a fiscal deficit of 7.2% at the end of the year, up from 6.6%, and sees the 2025 fiscal deficit narrowing to 4.9%, up from its previous forecast of 4%.
The Bank of Israel said, "The forecast for the government budget deficit in 2024 was revised upward to 7.2% of GDP, in view of the increase in war expenditures and the deferral of special assistance receipts from the US to the coming years. The deficit forecast for 2025 was compiled under the working assumption that the government will make adjustments of a permanent nature to reduce the deficit, which will total at least NIS 30 billion. Under this assumption, the deficit in the government budget is expected to be 4.9% of GDP in 2025. The debt to GDP ratio is expected to be 68% at the end of 2024, and to increase to 69% in 2025."
The Bank of israel expects inflation to rise to 3.8% at the end of the year, well above its annual target range of 1%-3%, but has kept its inflation forecast for 2025 unchanged at 2.8%.
Published by Globes, Israel business news - en.globes.co.il - on October 9, 2024.
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