Israel Monetary Policy February 2024

Israel: Central Bank keeps interest rates unchanged in February

At its 26 February meeting, the Bank of Israel (BOI) kept the policy rate unchanged at 4.50%, following January’s 25 basis-point cut.

The decision not to cut rates further was likely driven by a rise in near-term inflation expectations, expansionary fiscal policy and signs of recovering economic activity heading into 2024. On the flipside, additional rate hikes were not warranted given that inflation is currently within the BOI’s 1.0–3.0% target range and that the war is still hampering the economy somewhat.

There was no explicit forward guidance in the Central Bank’s press release, with future inflation and the developments of the war likely to play a key role in determining monetary policy ahead. All of our panelists see further cuts this year given that inflation is forecast to remain within the target range.

On the reading and outlook, Goldman Sachs analysts said:

“We thought that given the streak of relatively benign inflation prints, a weak 2023Q4 GDP print, and the strong performance of the Shekel — which points to reduced financial stability risks — the BoI had the room to ease policy in the near-term. However, the reaction function of the central bank clearly remains more cautious against the backdrop of elevated uncertainty. Following the surprise, we think that gradual rate cuts will resume at the next MPC meeting, but view near-term risks skewed in the hawkish direction.”

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