Predictions for the Bank of Israel to Reduce Interest Rates by a Quarter Point

SadaNews Economy Translation - Will the Bank of Israel reduce interest rates tomorrow (Monday) for the third time this year? Many Israeli economists expect the monetary committee to announce another reduction, bringing the central bank's interest rate to 3.5% and the basic interest rate to only 5%.
    
If these expectations are realized, the interest rate will drop to its lowest level since the end of 2022 (when it was 3.25%, before the wave of interest rate hikes). This move would significantly reduce mortgage payments by thousands of shekels over the loan period and is expected to provide crucial support to the business sector, which is under pressure from financing costs. As you know, the interest rate was reduced to 4.0% on January 5 of this year, and then again to 3.75% on May 25.
 
This decision comes according to SadaNews Economy's translation amid a complex macroeconomic situation. Supporters of reducing the interest rate point to a decline in inflation to 1.9%, which is within the Israeli government's price stability target range (1%-3%). In addition, the fluctuations in economic growth, the reduction of military operations on various fronts, and the agreement to limit the increase in the defense budget to 15 billion shekels (instead of the 40 billion shekels requested by the Ministry of Defense) contribute to reducing uncertainty.

On the other hand, the Bank of Israel faces risks that may hinder the reduction of the interest rate, including the recent rise in the value of the dollar and the euro against the shekel, which may increase import costs, political instability, and concerns that the application of "electoral economics" at the last moment could disrupt budget frameworks. Moreover, the proximity to the previous interest rate cut raises fears of renewed inflation.

Despite the risks surrounding the budget, the financial system shows optimism. Both Shmuel Katzvian, a financial markets strategist at Discount Bank, and Ofer Klein, head of the economics and research department at Harel, estimate that economic conditions are ripe for a quarter-point decrease tomorrow. The Psagot Investment House supports this expectation, indicating that the decline in global oil prices, along with expectations of a 0.1% decrease in the June index, strengthens the trajectory for imminent declines.

In the meantime, the business sector is exerting considerable pressure on the Governor of the Bank of Israel, Professor Amir Yaron, to reduce the interest rate by half a percentage point (0.5%). Certified public accountant Chen Shraiber, head of the Institute of Certified Public Accountants, stated: "The Bank of Israel has a golden opportunity to reduce the interest rate by half a percentage point. Last time, the governor realized his mistake when he only reduced it by a quarter point, and I hope this time they will not regret it later. Business owners are waiting for news that encourages growth. Let us be courageous."

Lawyer Roy Cohen, head of the Lahav Organization (Chamber of Independent Organizations), also urged the governor, saying: "Move from words to action, and immediately announce another interest rate cut, given the current economic situation. It is time to ease the situation for companies in Israel."

Source: Walla Hebrew site