Home Economy News Bank of Israel holds rates on higher inflation, Gaza war uncertainty

Bank of Israel holds rates on higher inflation, Gaza war uncertainty

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JERUSALEM (Reuters) – The Bank of Israel held short-term interest rates steady on Monday for the third straight meeting, citing rising price pressures, a rebound in economic activity and continued geopolitical uncertainty resulting from Israel’s war with Hamas in Gaza.

The central bank kept its benchmark rate at 4.50%. It had reduced the rate by 25 basis points in January after inflation eased and economic growth was hit by the war, but kept policy steady in February and April.

All 15 analysts polled by Reuters had expected no rates move and many economists believe the rate could stay put for the rest of 2024.

“There has been some increase in the inflation environment,” the central bank said in a statement. “Inflation expectations… for the coming year increased, and are around the upper bound of the target range.”

It noted that economic activity and the labour market continue to recover gradually, while continued geopolitical uncertainty is reflected in the economy’s high risk premium.

“In view of the war, the monetary (policy) committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity,” the bank said.

It reiterated that the interest rate path will be determined by future inflation, and continued stability in the financial markets, economic activity, and fiscal policy.

When it reduced rates in January, policymakers had believed the easing cycle would be gradual and result in cuts of up to one percentage point in 2024, but inflation has remained stubborn.

Israel’s annual inflation rate rose to 2.8% in April, still within its target range of 1-3%, after reaching 2.5% in February. The economy grew an annualised 14.1% in the first quarter from the prior three months after shrinking in the fourth quarter after the war broke out on Oct. 7.

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