The Monetary Committee of the Bank of Israel announced Monday that it has been decided to leave the interest rate unchanged at 4.5 percent.
“In view of the war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity,” the Bank said.
“The interest rate path will be determined in accordance with the continued convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.”
Economic activity and the labor market continue to recover gradually. Alongside this, the extent of geopolitical uncertainty has increased, reflecting a relatively high risk premium for the economy, according to the Bank.
Inflation in the past 12 months has moderated, and is within the target range. Expectations and forecasts for the coming year increased slightly, and are around the upper bound of the target range.
Since the previous monetary policy decision, the shekel has weakened by about 2.7 percent against the US dollar, by about 2.6 percent against the euro, and by about 2.3 percent in terms of the nominal effective exchange rate.
GDP contracted by 5.6 percent in the fourth quarter of 2023, compared with the third quarter. Over the year as a whole, GDP grew by 2 percent.
“The GDP growth was in line with the Research Department’s forecast from January 2024,” the Bank said. “The Research Department’s assessment is that GDP will grow by 2 percent in 2024 and by 5 percent in 2025. In view of the war, the forecast is characterized by a high level of uncertainty.”
In the housing market, home prices have increased in the past two months. The housing component of the CPI declined by 0.3 percent, and the pace of annual increase continued to moderate, reaching 2.6 percent.
“The constraints and activity difficulties in the construction industry in view of the war have moderated, but remain significant,” the Bank noted.
“The pace of global economic activity was surprisingly good in view of stronger activity in the US, while the economic weakness in the eurozone continued,” the Bank added. “Inflation moderated in many countries, but in most it remains above the central bank targets. According to market assessments, these are expected to moderate the path of interest rate declines.”
