The Bank of Israel’s Monetary Committee decided Monday (July 8) to leave the interest rate unchanged at 4.5 percent — 6 percent prime interest. It’s the fourth time in a row the Bank has chosen to refrain from making any changes.
The State of Israel has been at war for approximately nine months. Beyond the security effects, the war is having significant economic consequences. According to current indicators, the growth of economic activity moderated in the second quarter, following a sharp recovery in the first quarter, the Bank said.
The Consumer Price Index for May increased by 0.2 percent, and inflation in the past 12 months is 2.8 percent. Net of energy and fruits and vegetables, the year-over-year inflation rate stands at 2.2 percent.
In the housing market, home prices and new mortgage borrowing continue to increase. Activity in the construction industry is recovering gradually, but constraints on such activity in view of the war remain significant.
Inflation in the past three months, seasonally adjusted in annual terms, is higher than the year-over-year inflation rate. The moderation of inflation of the non-tradable components of the CPI was halted, and the annual pace of inflation of the tradable components remained virtually unchanged.
According to forecasters’ assessments, inflation will reach about 3.5 percent at the beginning of 2025, partly in view of the expected increase in VAT in 2025, and will then moderate toward the upper bound of the target range. Inflation expectations for the coming year from various sources are around the upper bound of the target range. Expectations for the second year and forward are within the target range, in its upper portion.
“The Committee’s assessment is that there are several risks of a potential acceleration in inflation: geopolitical developments and their effects on economic activity, a depreciation of the shekel, continued supply constraints on activity in the housing market and the air travel industry, fiscal developments, and global oil prices,” the Bank added.
“In view of the continuing war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity.”
