Israel's Bank Keeps Interest Rate Unchanged

SadaNews Economy Translation - The monetary committee at the Bank of Israel, headed by Professor Amir Yaron, kept the interest rate unchanged at 4.5% today, Wednesday, marking the thirteenth consecutive time.

The Bank of Israel announced that "in light of geopolitical uncertainty, the interest rate path will be determined according to the convergence of inflation with its target, the stability of financial markets, economic activity, and fiscal policy".

The Bank of Israel summarized the state of the economy: "The economy is recovering from the damages sustained during the Protective Edge operation, where inflation fell to 3.1% in July, but remains slightly above the target. The GDP contracted by 3.5% in the second quarter, but excluding the impact of the operation, moderate positive growth was recorded. Meanwhile, the labor market has nearly returned to its state before the operation, with the unemployment rate at 3.5%, and wages continue to grow, while housing prices have declined in recent months, with their rate of increase dropping to 2.5%, while mortgage delinquency rates remain low". This was translated by SadaNews Economy section.

The bank noted that the shekel has weakened against the dollar and the euro, with the local stock market recording slight declines despite global increases. The budget deficit has decreased to 4.9% of GDP, but significant geopolitical and financial uncertainty still exists, while moderate global growth has been recorded: in the United States, growth was 3% in the second quarter with inflation at 2.7%, and in Europe, growth was 0.5% with inflation at 3.1%. Both the Federal Reserve and the European Central Bank kept interest rates unchanged.

Yaniv Bagot, Vice President of Trading at the Tel Aviv Stock Exchange, responded to the interest rate decision saying: "It is a conservative and expected decision from the Bank of Israel," adding: "Given the uncertainty surrounding the future of fighting in Gaza, and the fact that the inflation rate over the past twelve months has reached 3.1%, which is still above the maximum target inflation rate of 3%, the Bank of Israel has chosen to adopt a 'wait-and-see' approach."

Ronen Ma’aham, Chief Market Economist at Mizrahi Tefahot Bank, commented: "It seems that the factors hindering a reduction in the interest rate continue to dictate the direction, including: actual inflation (which is 3.1% and still slightly above the maximum target inflation of 3%), the budget deficit ceiling for 2025 (which has been raised to 5.2% of GDP, 0.3% higher than the latest forecasts from the Bank of Israel), the tense political and security environment (following the government’s decision to occupy the city of Gaza), and general economic uncertainty."