The Bank of Israel leaves the interest rate at the level of 4.5%

The Bank of Israel’s monetary committee decided to leave the interest rate unchanged at 4.5%.

Despite the decrease in inflation, which reached 2.8%, within the target (1-3%), the monetary committee decided to keep the interest rate high. The Bank of Israel predicts that inflation will reach 3.5% at the beginning of 2025, among other things, because of the increase in VAT, and it will moderate after that. In addition, they predict other risks for accelerating inflation: geopolitical developments, devaluation of the shekel, oil prices and supply limitations in the housing market and in aviation.

Since the last interest rate decision, there has been a 1.3% depreciation in the value of the shekel against the dollar. This change makes the products imported to Israel more expensive.

Because of the continuation of the war, the bank’s research division updated the growth forecasts downward. The bank predicts that the war will continue at a higher intensity until the end of 2024 and will fade at the beginning of 2025. The GDP is expected to grow at a rate of 1.5% in 2024 and 4.2% in 2025, a decrease of 1.3% in total. The unemployment forecast has been updated upwards to 4% this year , and 3.8% next year. The annual inflation rate will be 3% this year, and 2.8% next year.

The Bank of Israel predicts that the government will advance cuts to the extent of 30 billion shekels, and that any further step will be balanced by additional steps. They predict a deficit of 6.6% this year and 4% next year. The debt to GDP ratio will rise to 67.5% this year, and 68.5% next year.