Israel – The attention of financial markets in Israel is turning to the meeting of the Monetary Policy Committee at the Bank of Israel (Central Bank), on Wednesday, to decide on interest rates on the shekel.
The bank was scheduled to hold its meeting in accordance with the meeting bulletin issued at the beginning of each year, yesterday, Monday, but it postponed the meeting for two days so as not to conflict with the October 7 anniversary ceremonies.
Currently, interest rates on the shekel are 4.5 percent, which is 25 basis points lower than the 4.75 percent rate recorded until the beginning of this year, which is the highest rate recorded since 2007.
The Bank of Israel faces the risk of taking a decision to raise interest rates, at a time when central banks around the world, led by the US Federal Reserve, have begun the journey of lowering interest rates due to the decline in inflation in those countries.
However, inflation in Israel returned and rose last August to 3.6 percent, the highest level since October 2023, according to data from the Israeli Bureau of Statistics.
The Bank of Israel sets a short- and medium-term target of 3 percent for consumer prices in the country.
The Globes website, which specializes in the Israeli economy, wrote on Monday: “The Monetary Policy Committee of the Bank of Israel will meet at a difficult time, especially for the Israeli economy, with the continuing fighting, high inflation, and high volatility in the financial markets, especially the foreign exchange market.”
In its last interest rate decision in August, the Bank of Israel’s Monetary Policy Committee predicted that the next rate cut was unlikely to occur before the second quarter of 2025.
Due to fears of an Israeli attack on Iran that might be followed by a response from Tehran, the Israeli shekel fell in early trading today to the level of 3.82 shekels / dollar, which is the lowest level of the Israeli currency in two months.
Anatolia
#Inflation #complicates #Bank #Israels #task #interest #rates
Analysis: Bank of Israel’s Interest Rate Decision and Its Impact on the Economy
As the financial markets in Israel await the meeting of the Monetary Policy Committee at the Bank of Israel, all eyes are on the interest rate decision that will be made on Wednesday. The Bank of Israel’s interest rate has been a topic of interest in recent months, with the bank making adjustments to its benchmark rate in response to changes in inflation and economic conditions.
According to recent data, the Bank of Israel’s declared interest rate was 4.5 percent as of May 2024 [[1]]. This followed a decision to reduce the rate by 25 basis points in January [[3]]. The reduction in interest rates is likely a response to lower inflation rates and a cautious approach to monetary policy.
The Deposit Interest Rate in Israel has also been on a declining trend, decreasing to 4.60 percent in January from 4.86 percent in December 2023 [[2]]. This trend suggests that the Bank of Israel is taking a cautious approach to monetary policy, balancing the need to control inflation with the need to support economic growth.
Despite the reduction in interest rates, the Bank of Israel has decided to hold rates steady in recent months. In a decision made in July 2024, the central bank left its benchmark rate at 4.50% [[3]]. This decision reflects the bank’s cautious approach to monetary policy, as it seeks to balance competing economic priorities.
In my analysis, the Bank of Israel’s decision to hold interest rates steady reflects a careful balancing act between controlling inflation and supporting economic growth. The bank’s cautious approach is justified by the current economic conditions, including lower inflation rates and a stable economy.
However, the impact of the interest rate decision on the economy is complex and multifaceted. A lower interest rate can boost economic growth by reducing borrowing costs and increasing consumer spending. On the other hand, a lower interest rate can also fuel inflationary pressures if not managed carefully.
the Bank of Israel’s interest rate decision is a critical factor in shaping the country’s economic trajectory. As the financial markets await the decision, it is clear that the bank will need to walk a fine line between controlling inflation and supporting economic growth. The cautious approach taken by the bank in recent months suggests that it is committed to achieving this balance, but only time will tell how effective its monetary policy will be.
References:
[[1]]https://www.statista.com/statistics/1475575/israel-monthly-central-bank-interest-rate/
[[2]]https://tradingeconomics.com/israel/deposit-interest-rate
[[3]]https://www.reuters.com/markets/rates-bonds/bank-israel-holds-rates-remain-cautious-while-war-persists-2024-07-08/
