By Steven Scheer
JERUSALEM (Multibagger) - The Bank of Israel is set to keep short-term interest rates steady for a fourth consecutive meeting next week and potentially until 2025, according to a Multibagger poll of economists.
All 15 economists surveyed predicted that the central bank would maintain its benchmark rate at 4.5% when the decision is announced on Monday at 4 p.m. (1300 GMT).
Despite annual inflation holding at 2.8% in May, below the target range of 1-3%, economists believe that persisting inflation pressures, geopolitical risks, and fiscal expansion will prevent the Bank of Israel from easing monetary policy.
The war in Gaza has further heightened uncertainty, with the risk premium measured in Israel's government bond yield spreads remaining high, supporting the decision to leave interest rates unchanged.
Following a steep contraction in the fourth quarter of last year, the Israeli economy rebounded by 14.4% in the first quarter of this year, indicating no immediate need for monetary easing.
Bank of Israel Governor Amir Yaron has indicated that further rate cuts will be challenging as long as inflation remains a concern and the conflict with Hamas continues to fuel uncertainty and drive up government spending.
Additionally, the budget deficit has surged to 7.2% of GDP due to higher defence costs, and fears of a potential conflict with Hezbollah on the Lebanese border have kept Israel's risk premium elevated.
Alongside the interest rate announcement, the Bank of Israel will also release updated macroeconomic estimates on Monday, with Governor Yaron scheduled to hold a news conference thereafter.
Despite expectations for a possible rate cut in the next 12 months, concerns about the risk premium are likely to weigh on the central bank's decision-making.
Analysis:
The Bank of Israel's decision to maintain interest rates amidst the ongoing conflict in Gaza reflects the delicate balance between economic stability and geopolitical risks. The persistence of inflation pressures, uncertainty surrounding the conflict, and the widening risk premium all contribute to the central bank's cautious approach to monetary policy. As investors and consumers, it is essential to monitor these factors closely, as they can have a significant impact on financial markets, interest rates, and overall economic conditions.