Bank of Israel Holds Steady Amid Inflation Easing and Economic Uncertainty

The Bank of Israel opted to keep its short-term interest rates unchanged at 4.50% during its latest meeting, marking the 14th consecutive decision to maintain this rate. The decision comes in response to a further easing of inflation observed in August, which occurs amidst ongoing economic uncertainty prompted by the two-year conflict with Hamas in Gaza.

In January 2024, the central bank made its last rate adjustment by reducing it by 25 basis points, following the initial impacts of easing inflation and slowing economic growth due to the Gaza conflict. Since then, the bank has taken a cautious approach, emphasizing that it is not in a hurry to make further cuts as inflation hovers around the upper limit of its target range. A Reuters poll revealed that nine out of twelve analysts had anticipated no change in the rate this time, though three predicted a further 25 basis points reduction.

Israel's inflation rate for August fell to 2.9%, coming back within the government's target range of 1-3%, compared to July's figure of 3.1%. However, the economy faced a severe contraction, shrinking by an annualized 4% in the second quarter, complicating prospects for future monetary policy adjustments.

(With inputs from agencies.)