Israel Maintains Steady Interest Rates Amid Economic Challenges
The Bank of Israel has decided to keep its benchmark interest rate unchanged at 4.50% for the seventh consecutive meeting, reflecting ongoing concerns about inflation and economic growth. This decision comes in the wake of the ongoing conflict in Gaza and Lebanon, which has significantly impacted the Israeli economy since the war began on October 7, 2023. The central bank's decision aligns with the expectations of analysts, none of whom anticipated a change in rates during this meeting.
Inflation and Economic Growth Forecast
Israel's annual inflation rate stood at 3.5% in October, remaining above the government's target range of 1-3%. This marks a notable increase from earlier in the year, where inflation peaked at 3.6% in August before dropping to 2.5% in February. The central bank has expressed caution regarding potential rate hikes, attributing inflation largely to supply shocks related to the ongoing conflict. Furthermore, the Bank of Israel has revised its economic growth forecast for 2024 down to 0.5%, a significant decrease from the previously projected 1.5%.
Rising Risk Premium and Investor Concerns
The Bank of Israel is also grappling with a rising risk premium for investing in the country, a situation exacerbated by the recent war. This increased risk has implications for foreign investment and economic stability. Policymakers have indicated that they will continue to monitor inflation trends closely and adjust monetary policy as necessary to ensure economic stability during these turbulent times.
