As expected, the Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has left the interest rate unchanged at 4.75% for the fourth consecutive meeting. In view of the war, the Monetary Committee said its policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity.
For the second consecutive month, the Bank of Israel Research Department has cut its growth forecast, and in its estimation, GDP will grow by 2% in each of 2023 and 2024, the Bank of Israel says, down from 2.3% in 2023 and 2.8% in 2024 in its previous forecast.
The Bank of Israel is still concerned about the need to return inflation to the annual target range of 1%-3%. The bank said, "Following a sharp depreciation of the shekel in the initial weeks of the war, there has been a sharp appreciation, and the shekel strengthened below its prewar level. In view of the recent volatility of the exchange rate, depreciation of the shekel continues to pose a risk to the convergence of inflation to the target range."
In stressing the need to support economic growth, the Bank of Israel did hint that interest rate cuts could be expected in 2024 if the markets remain stable and inflation falls. "The interest rate path will be determined in accordance with developments in the war and the uncertainty derived from it. Insofar as the recent stability in the financial markets becomes entrenched and the inflation environment continues to moderate toward the target range, monetary policy will be able to focus more on supporting economic activity."
This is the first interest rate decision since Bank of Israel Governor Prof. Amir Yaron agreed to accept the offer of Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich to continue for a second five year term.
Published by Globes, Israel business news - en.globes.co.il - on November 27, 2023.
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