Israel's Central Bank Expected to Hold Interest Rates Amid Election Uncertainty
Translated & summarized from Cursorinfo by baba
Israeli economists predict the Bank of Israel will hold its benchmark interest rate at 3.25% this Wednesday, pausing a series of cuts due to election uncertainty. This decision comes despite inflation being within the target range and follows five previous rate reductions. Analysts suggest political instability and investor concerns about potential outcomes of the October 27th elections are key factors influencing the central bank's pause.
The story in 6 lines · by baba
- The Bank of Israel is expected to keep its interest rate at 3.25% on Wednesday, pausing recent easing.
- High political uncertainty ahead of the October 27th elections is cited as the main reason for the pause.
- Fifteen economists surveyed by Reuters unanimously predict the rate will remain unchanged.
- Inflation is currently within the government's 1-3% target range.
- Analysts anticipate at least one more rate cut to 3% in the future.
- Political instability and investor concerns are influencing the central bank's decision.
Economists widely predict that the Bank of Israel will maintain its benchmark interest rate at 3.25% this Wednesday, pausing a series of three consecutive rate cuts. This decision is attributed to high political uncertainty preceding the upcoming parliamentary elections on October 27th. Despite the absence of significant inflationary spikes, the financial regulator is expected to take a temporary break.
This pause follows successive reductions in May, July, and September, each by 0.25 percentage points. Since the monetary easing cycle began in November of the previous year, the rate has been lowered five times. These measures have successfully brought annual inflation back within the government's target range of 1-3%.
Market experts anticipate at least one more rate cut to 3% in the future, a move that contrasts with the global trend of tightening monetary policy. Some analysts believe that a further reduction before the election would benefit incumbent Prime Minister Benjamin Netanyahu. However, recent polls suggest neither Netanyahu's coalition nor the opposition bloc led by former Chief of Staff Gadi Eisenkot is poised to secure a stable majority.
Barclays analysts are convinced that political instability will prompt the regulator to freeze the current rate. Rafi Gozlan, Chief Economist at IBI Investment House, noted that investors fear a rise in the risk premium if Netanyahu's bloc wins, citing potential negative impacts on international relations, security, and the stability of state institutions.
In September, inflation slightly increased to 1.6% from a five-year low of 1.5% in August. The national GDP accelerated significantly in the second quarter, reaching 15.4% year-on-year seasonally adjusted, while the shekel weakened to a nine-month low against the US dollar. Following the September rate cut, Deputy Governor Andrew Abir stated the bank was prepared to continue easing if price pressures remained absent and the market adapted to previous decisions.
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