Bank of Israel Signals Possible Rate Increases

The Bank of Israel has maintained its benchmark interest rate at 4.5% for the sixth consecutive meeting due to ongoing conflicts with Hamas and Hezbollah, which have heightened inflationary pressures and increased investor risk premiums. Despite previous expectations for rate cuts, the central bank now signals the possibility of rate increases if inflation accelerates beyond projections. Current inflation stands at 3.6%, above the government's target range, and is exacerbated by war-induced supply constraints. Economic growth forecasts have been slashed, with the central bank predicting growth of 0.5% in 2024 and 3.8% in 2025, accounting for the ongoing conflict. The central bank's cautious stance reflects uncertainties about the war's duration and its economic impact, as well as a wider budget deficit and higher risk premiums. Governor Amir Yaron emphasized that any future rate changes will be data-driven, with potential adjustments depending on inflation trends.