Bank of Israel Governor Warns Inflation Will Rise, Next Government Faces Tough Economic Challenge

Bank of Israel Governor Professor Amir Yaron told Bloomberg Television that inflation is expected to rise in the coming months, signaling that further interest rate cuts are possible but not guaranteed. Currently, the Bank of Israel's interest rate stands at 3.5% after two consecutive reductions. Yaron emphasized that the upcoming rate decision, due in about two weeks, will depend on real-time data, including labor market conditions, inflation trends, geopolitical risks, and fiscal uncertainties.

Although inflation slowed to 1.5% in July, Yaron expects it to accelerate to around 2%, the midpoint of the government's inflation target, in the near future. Despite inflation concerns, Yaron praised Israel's strong economic growth in the second quarter, highlighting the economy's resilience amid ongoing war and uncertainty.

Looking ahead, Yaron warned that the next government, to be formed after the October elections, will face a difficult task balancing the reduction of public debt with continued defense spending and investments in growth engines. He described managing these three priorities simultaneously as a "hard challenge."