The Monetary Committee of the Bank of Israel announced that it kept the interest rate unchanged at 4.5%. This is the sixth time in a row that the Bank of Israel has left the interest rate unchanged, after reducing 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 continued monetary tightening policy is in line with economists’ expectations due to geopolitical uncertainty and fears that additional 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 light of supply constraints in the economy. The increase in the pace of inflation is broad-based, and is reflected in both non-tradable and tradable components.”
The Bank of Israel added: “Given the continuation of the war, the Monetary Committee’s policy focuses on stabilizing markets and reducing uncertainty, in addition to stabilizing prices and supporting economic activity. The interest rate path will be determined according to the convergence of inflation.” To its goal, continued stability in financial markets, economic activity and fiscal policy.
The Bank of Israel’s research department also lowered once again 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 latest indicators of economic activity point to some increase in activity in the third quarter, although the level of activity is still far from the trend line. The labor market remains tight, especially in light of supply constraints,” the Bank of Israel said. “
The Bank of Israel’s research department expects a fiscal deficit of 7.2% at the end of the year, up from 6.6%, and expects the 2025 fiscal deficit to shrink to 4.9%, up from its previous forecast of 4%.
The Bank of Israel said: “The government budget deficit forecast in 2024 has been revised upward to 7.2% of GDP, in light of the increase in war expenditures and the postponement of special aid receipts from the United States to future years. Deficit forecasts for 2025 were 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 government budget deficit is expected to reach 4.9% of GDP in 2025. The debt-to-GDP ratio is expected to reach The total will reach 68% at the end of 2024, and rise to 69% in 2025.
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The Bank of Israel expects inflation to rise to 3.8% at the end of the year, well above the annual target range of 1% to 3%, but it left 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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