Economists Predict Bank of Israel to Hold Interest Rates Steady

Bank of Israel is widely expected to maintain its benchmark interest rate at 3.25% today, following three consecutive reductions. This decision comes after rate cuts in May, July, and September. All 15 economists surveyed by Reuters anticipate the rate will remain unchanged, marking the lowest level in four years.

The central bank's decision, due to be announced at 4:00 PM, will be followed by a press conference led by Governor Amir Yaron. The current cycle of rate reductions, which began last November, has seen five cuts of 0.25 percentage points each, driven by slowing inflation.

Despite a global trend towards tighter monetary policy, the prevailing market expectation is for at least one more rate cut to 3%. Barclays suggests that political uncertainty may lead the Bank of Israel to pause its current easing trend. Inflation in Israel rose slightly to 1.6% in September, below forecasts and down from 1.5% in August, the lowest rate in five years. Concurrently, the economy showed strong recovery in the second quarter with a 15.4% annualized growth rate, while the shekel weakened to a nine-month low against the dollar.

Following the September rate cut, the Bank of Israel indicated that rates could continue to fall if price pressures remained stable and the economy responded positively to the previous reductions. Economist Michel Nies of Citibank noted that the "impressively" low inflation provides a compelling reason for further rate cuts this month. However, he posited that the Bank of Israel might skip a cut this week, with November's meeting, after the elections and with another expected low October inflation reading, potentially offering a better opportunity. Nies also pointed to the real economy not showing urgency, with monthly output indices stable and the labor market tight, alongside shekel movements, geopolitical risks, and the upcoming elections, making it difficult to see a reason for the bank to rush another cut.