Bank of Israel Governor Signals Interest Rate Cut in September Not Guaranteed Amid Rising Uncertainty

Bank of Israel Governor Prof. Amir Yaron indicated that while another interest rate cut remains possible, it is not assured. In an interview with Bloomberg Television, Yaron said the upcoming rate decision in about two weeks will depend on real-time data. Currently, the Bank of Israel's interest rate stands at 3.5% after two consecutive reductions. In July, the bank projected that under a baseline scenario, the rate could fall to 3% within a year. However, Yaron noted that uncertainty has increased since the last decision, with the committee needing to consider labor market conditions, inflation, geopolitical risks, and fiscal risks.

Inflation recently slowed to just 1.5%, but Yaron does not expect this low level to persist. He anticipates inflation will accelerate to 2% in the coming months, aligning with the government's mid-target inflation rate. On the other hand, the strong economic growth in the second quarter, despite the war and uncertainty, provides the central bank with reason to consider further easing. Yaron described the economy's resilience as "very strong."

Looking ahead, Yaron addressed the economic challenges facing the government to be formed after the October elections. He emphasized the need to reduce public debt while continuing defense spending and investing in growth engines, calling the management of these three priorities "difficult."