By Steven Scheer and Charlotte Greenfield
JERUSALEM (Reuters) -The Bank of Israel left short-term interest rates unchanged on Monday citing “geopolitical uncertainty” and saying inflation remained above the target range despite it easing in May.
The central bank left its benchmark rate at 4.50% for the 12th meeting in a row.
“In view of the geopolitical uncertainty, the interest rate path will be determined in accordance with the convergence of inflation to its target range, stability in the financial markets, economic activity, and fiscal policy,” the bank said in a statement announcing the decision.
Its last move was to reduce the rate by 25 basis points in January 2024 after inflation eased and economic growth slowed in the early days of the Gaza war. It has kept policy steady since then and said it is in no rush to ease again while inflation remains above target.
Ten of 11 analysts polled by Reuters had expected no rate move on Monday. One predicted a 25 bps rate cut due to the end of a 12 day Israel-Iran war that saw Israel’s risk premium slide and the shekel appreciate sharply.
The annual inflation rate eased to 3.1% in May from 3.6% in April but remained above the government’s 1-3% annual target.
The bank said that it forecast inflation would ease to within its target range in coming months and be around the midpoint of that range in a year’s time.
However, it noted that risks remained that could affect the inflation outlook.
“In the Committee’s assessment, there are several risks for a possible acceleration of inflation or for it not converging to the target range: geopolitical developments and their impact on economic activity, an increase in demand alongside supply constraints, and worsening global terms of trade,” the bank said.
The economy grew by an annualised 3.7% in the first quarter after a 1% expansion for all of 2024 due to the war.
Economic uncertainty has lingered due to the 21-month-old conflict between Israel and Palestinian Islamist group Hamas in Gaza.
Israeli Prime Minister Benjamin Netanyahu is due to meet with U.S. President Donald Trump at the White House on Monday, while Israeli officials hold indirect talks with Hamas, aimed at a U.S.-brokered Gaza hostage-release and ceasefire deal.
(Reporting by Steven Scheer and Charlotte Greenfield; Editing by Hugh Lawson)
Comments