Analysts Predict No Interest Rate Cut Despite Positive Inflation Data

Despite a sharper-than-expected drop in September inflation, most analysts believe the Bank of Israel will keep interest rates unchanged at its upcoming decision. The Consumer Price Index for September fell by 0.5%, exceeding market expectations of a 0.3% decrease, bringing the annual inflation rate to 1.6% against a forecast of 1.8%.

Stock market economist Nisan Avraham explained that the September inflation drop may reflect seasonal factors rather than a trend change. He also pointed to the global interest rate environment, noting that a widening interest rate gap with the U.S. could weaken the shekel, increase import costs, and reignite inflationary pressures, limiting the Bank of Israel's maneuvering room.

Avraham added that strong domestic macroeconomic data, including robust private consumption and a tight labor market, allow the Bank of Israel to wait for more information before considering another rate cut. The sensitive timing, just six days before elections, also plays a role, as a rate cut could be perceived as politically motivated. Increased tensions with Iran further bolster the expectation that the Bank of Israel will opt for the status quo.