“Since the outbreak of the war, and in recent months in particular, geopolitical uncertainty and its economic ramifications have increased,” the central bank said in a statement. “The uncertainty surrounding the state budget for 2025, and the implementation of adjustments required to reduce the deficit on an ongoing basis, contributes to an increase in the risk premium and is liable to weigh on the return of inflation to its target.”
Bank of Israel Governor Amir Yaron has in recent weeks expressed concern over the government’s management of its expansionary fiscal policy to fund growing defense and civilian expenditure during the ongoing war with the Hamas terror group. Earlier this month, Yaron urged Prime Minister Benjamin Netanyahu to advance the approval of the 2025 state budget and make responsible spending cuts to preserve fiscal discipline and credibility. Discussions with the government on the 2025 state finances have stalled in recent weeks, however.
The central bank decided to hold interest rates at 4.5 percent, in line with forecasts by most economists. Ahead of the decision, economists were not split about whether policymakers would make a change to the interest rate level, but rather over whether there would be one reduction at the very end of the year, or none at all, amid uncertainty over the risk of an escalation of the fighting to an all-out-war.
Meanwhile in the US, expectations for multiple interest rate cuts by the end of the year are increasing, and the European Central Bank is also expected to lower borrowing costs further. READ MORE
