Israel Monetary Policy September 2023

Israel: Bank of Israel keeps rates unchanged in September

At its 4 September meeting, the Bank of Israel (BoI) kept the policy rate at 4.75%, following 465 basis points of tightening from early 2022 through to May this year.

The decision was driven by declines in headline and core inflation in recent months, and by one-year inflation forecasts that were within the Central Bank’s target range of 1.0–3.0%.

Looking forward, the BoI said it “sees a real possibility of having to raise the interest rate in future decisions, if the inflation environment does not continue to moderate as expected.” In particular, shekel weakness could stymie the slowdown in inflation; the currency has depreciated around 7% year to date amid uncertainty linked to judicial reform, and could weaken further ahead if more elements of the reform are passed by parliament. That said, most of our panelists currently expect the Bank to stay on hold for the remainder of the year and to then begin cutting rates in 2024.

Giving their take on the monetary policy outlook, analysts at Goldman Sachs said:

“We think that the BoI will keep policy rates unchanged at 4.75% […]. However, as long as the shekel remains under depreciation pressures, we think that the hawkish bias is likely to stay, and we view the exchange rate as the key hawkish risk to our rate view. The currency remains vulnerable to domestic political developments that are likely to come back to the forefront as parliament returns from recess and a key High Court ruling is coming up.”

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