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The Bank of Israel made a significant decision on Wednesday by keeping interest rates unchanged for the fifth consecutive meeting. This move comes as a response to the geopolitical uncertainty that has increased economic risks, alongside rising inflation. The central bank announced that rates are unlikely to decrease further until 2025.
Concerns over Israel's risk premium, which has spiked since the conflict with Hamas militants began in October, led to the decision to maintain the benchmark rate at 4.50%. The decision was in line with the expectations of all 15 analysts polled by Multibagger.
The central bank emphasized the importance of stabilizing the markets, reducing uncertainty, maintaining price stability, and supporting economic activity in the current environment. Policymakers also expressed worries about the loosening fiscal policy and the impact of the ongoing conflict on the economy.
Despite expectations of possible rate cuts later in the year, Deputy Governor Andrew Abir indicated that it is unlikely for rates to be reduced until well into 2025. Factors such as rising inflation, supply disruptions, and labour shortages have contributed to the cautious approach towards monetary policy.
Israel's annual inflation rate rose to 3.2% in July, exceeding the government's target range of 1%-3%. Economic growth slowed significantly in the second quarter, reflecting the impact of supply limitations on the overall activity level.
Analysis:
The decision to maintain interest rates by the Bank of Israel reflects the cautious approach towards monetary policy in light of geopolitical uncertainty and economic risks. This move is aimed at stabilizing the markets, reducing uncertainty, and supporting economic activity. Investors should pay attention to rising inflation, supply disruptions, and labour shortages, which could impact the economy and financial markets in the coming years.