Israel Monetary Policy May 2024

Israel: Central Bank maintains rates in May

At its meeting on 27 May, the Central Bank decided to leave the interest rate unchanged at 4.50%.

Rising inflation so far this year, coupled with higher inflation expectations for the year ahead, meant that a cut to the policy rate was not warranted. On the flipside, both headline and core inflation are still within the Central Bank’s 1.0–3.0% target range, making monetary tightening unnecessary.

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. Most panelists see rate cuts later this year in order to prop up an economy which has so far made only a partial recovery from the war with Hamas.

On the outlook, Goldman Sachs’ Kevin Daly said:

“Against the backdrop of geopolitical uncertainty, it is difficult to be confident on the likely timing of the next cut. However, we maintain a relatively dovish view on the medium-term outlook for Israeli inflation and rates. The recent rise in inflation has, in our view, been driven by non-core items in the CPI basket […]. Recent Shekel appreciation is likely to provide a disinflationary impulse and we expect headline CPI to remain inside the BoI’s +2.0 +/- 1pp target range through the end of the year. Our baseline is that more favourable inflation prints in the coming months and a reduction in Shekel volatility will enable the BoI to restart its cutting cycle in Q3 at the pace of 25bp a quarter.”

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