Bank of Israel to leave rates steady, talk of hikes eases up: Reuters poll

By Steven Scheer

JERUSALEM (Reuters) – The Bank of Israel is expected to hold the line on short-term interest for a seventh straight policy meeting next week, with a stabilisation in inflation pressures likely taking any rate increases off the table.

All 13 economists polled by Reuters said they expected the central bank to keep its benchmark rate at 4.5% when the decision is announced on Monday at 4 p.m. (1400 GMT).

Driven by supply issues, Israel’s annual inflation rate had accelerated to a 10-month high of 3.6% in August but it eased to 3.5% in September and was holding at that level in October.

At the same time, Israel’s economy grew an annualised 3.8% in the third quarter, rebounding somewhat from near zero growth the prior three quarters as the war against Palestinian Hamas militants in Gaza continued to take its toll.

Central bank officials warned after the prior rates decision on Oct. 9, that rate hikes were possible if inflation remained beyond the government’s annual inflation target of 1%-3%. Before that, the markets had believed another rate cut, after it had reduced the key rate in January was most likely – in line with rates in the United States and in Europe.

“The Bank of Israel might choose to defer any decision on a rate increase to later meetings,” said Citi economist Michel Nies, citing the subsequent decision in January when a “clearer picture of the economy during the period of more intensive conflict on the northern border is available”.

Since Oct. 7, 2023, Israel has largely been fighting Hamas in Gaza to Israel’s south. But in response to a year of rockets by Hezbollah, Israel has escalated attacks on Hezbollah in Lebanon in the north – and fears have grown the conflict could widen to Iran.

With the value added tax rate set to rise in January, analysts believe the inflation rate could reach 4% at the start of 2025 but move back below 3% later in the year.

“We cannot exclude the possibility that the monetary environment will shift significantly towards the middle of 2025, and that the conditions for reducing rates will mature earlier than when the market currently expects,” Bank Hapoalim (TASE:POLI) economist Victor Bahar said.

Bank of Israel Governor Amir Yaron has said interest rate policy going forward was “data dependent”.