Andrew Abir, Deputy Governor of the Bank of Israel, said that the central bank will not reduce short-term interest rates in its final two policy meetings in 2024 on Wednesday, 28 August. The Governor said that this decision was taken due to increasing price pressures and ongoing geopolitical risks.
The central bank recently maintained its benchmark interest rate at 4.5% for the fifth consecutive decision, expressing concerns about inflation, which has climbed to 3.2%.
The central bank previously reduced the rate by 25 basis points in January of this year but has kept it unchanged since then. Policymakers will make their next rate decisions on 9 October 2024, followed by 25 November 2024, and 6 January 2025.
“It’s unlikely for us to be cutting rates until well into 2025,” Abir told Reuters, noting that the decision remains data-dependent As long as the uncertainty around the war (and) the dislocation in various key industries carries on, it’s difficult for us to be able to reduce interest rates.”
Abir stated that lowering rates now would increase the gap between demand and supply, causing price hikes, especially in housing, despite a 1.2% economic growth in the second quarter. Meanwhile, investors seek higher returns amid uncertainty and geopolitical risk.
The war is affecting fiscal policy by increasing the budget deficit. At the same time, the central bank is disappointed by the government’s delay in creating a plausible 2025 budget that requires tax hikes and spending cuts.
