Bank of Israel to Keep Interest Rates Unchanged Amid Rising Inflation and Geopolitical Tensions
In a highly anticipated decision, the Bank of Israel (BoI) is expected to maintain its benchmark interest rate at 4.5% for the fifth consecutive meeting, according to a recent Multibagger poll. The central bank's decision comes amidst mounting inflationary pressures and the ongoing conflict between Israel and Hamas, leaving economists divided on the possibility of a rate cut.
Israel's annual inflation rate rose to 3.2% in July, surpassing the bank's target range of 1-3% after months of fluctuation. Despite this, the country's economic growth in the second quarter fell below expectations at 1.2% on an annualized basis.
Economists like JP Morgan's Anatoliy Shal predict that the BoI will prioritize combating inflation over stimulating growth in the near term, especially given the current geopolitical tensions. With a budget deficit exceeding targets and the risk of further escalation in the region, most experts anticipate a prolonged period of unchanged rates.
While central banks like the Federal Reserve and the European Central Bank are considering rate cuts, the BoI remains cautious due to various inflationary factors. The Israeli shekel has strengthened recently, reflecting market confidence in the containment of the conflict and expectations of U.S. rate cuts.
Looking ahead, some economists, including Kevin Daly of Goldman Sachs, foresee a potential easing of inflation and a resumption of rate cuts by the BoI later in the year. However, the timing remains uncertain amidst the complex economic and geopolitical landscape.
In conclusion, the BoI's decision to hold rates steady reflects a balancing act between inflation management and economic stability in the midst of geopolitical turmoil. Investors and consumers should monitor developments closely and consider the potential impact on their financial strategies in the coming months.