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The Bank of Israel will not change its key policy rate at its next meeting, despite a rise in inflation in January, according to 13 economists polled by Reuters. The regulator is expected to keep the rate at 4.5%, as it has been since January 2024, when it was cut from 4.75%.
Inflation in Israel rose to 3.8% in January, the highest since September 2023. The main reasons for this were rising water and electricity prices and higher taxes. The authorities partially attribute this to the effects of the war.
The central bank forecasts that inflation will return to the 1-3% target range in the second half of 2025, which could open up opportunities for rate cuts. Bank of Israel Governor Amir Yaron has hinted at a possible 1-2 rate cuts later this year.
Israel’s economy grew by 2.5% in the fourth quarter of 2024 and by 1% for the whole year. Nevertheless, economists note that a rate cut is only possible if inflation expectations stabilise.
Falling risk premium: Following the ceasefire agreement between Israel and Hamas, the country’s credit risk has declined significantly, which may strengthen the case for monetary policy easing.
Is a rate cut possible in May? Citi economists believe that if inflation begins to decline, the Bank of Israel may decide to make the first interest rate policy review at its May meeting.
