Israel Bank decided to keep the interest rate at a rate of 4.5% despite a slowdown in inflation

Monday, the Governor of the Bank of Israel, Prof. Amir Yaron, announced the Monetary Committee's decision to maintain the interest rate at 4.5%, despite a slowdown in inflation to 2.5%. Prof. Yaron emphasized the need for caution, stating that "a full recovery of the economy is still a distant goal," and that future interest rate adjustments will hinge on inflation converging with economic policy targets.

This marks the second time in 2024 that the Bank of Israel has opted to keep the interest rate unchanged, amidst rising concerns over inflation and geopolitical uncertainties. Expectations for inflation in the next 12 months have surged above 3%, prompting cautious monetary policy measures.

Market Reaction:

Following the interest rate decision, the dollar weakened against the shekel, trading at approximately NIS 3.678 per dollar, reflecting a 0.7% decrease compared to the representative rate.

Macroeconomic Forecast Update:

An updated macroeconomic forecast by the Bank of Israel's research division projects inflation in 2024 to rise to 2.7%, up from 2.4% in the previous forecast. Economic growth remains steady at 2% for this year and 5% in 2025.

Risks and Caution:

Prof. Yaron highlighted risks including geopolitical tensions, potential impact on exports due to conflict developments, currency devaluation, fiscal changes, and rising global oil prices. The decision to maintain the interest rate unchanged reflects a commitment to stability amidst market volatility and uncertainty.

Despite positive signs of economic recovery, the Bank of Israel remains vigilant in the face of external pressures and potential inflationary risks. Prof. Yaron stressed the importance of stability, price control, and continued support for economic activity in navigating through challenging times.