No Israeli Interest Rate Change Expected Now, but a Cut May Come Next Month

The Bank of Israel is announcing its decision on Monday afternoon

Israeli shekels in a counting machine
johan10 / iStockphoto via Getty

Israel’s central bank is expected to leave short-term interest rates unchanged on Monday, but analysts believe a rate reduction remains possible this year as long as inflation stays very low.

Twelve of 13 economists polled by Reuters said policy makers would keep the Bank of Israel’s benchmark rate at 0.25% when it announces its decision at 4 P.M. One analyst expects a cut of 15 basis points. A Bloomberg poll showed 15 out of 16 seeing no change, with none seeing a 25-point cut.

The central bank had been readying for a rate rise but in August reversed course and announced that it would not act “for an extended period” as other central banks were lowering their rates.

Although the consumer price index edged up in the 12 months to August to 0.6%, inflation remains below the government’s annual target range of between 1% and 3%. The shekel, which weakened somewhat in the first part of September, is strengthening again.

On Friday, the nominal effective rate, which reflects 26 foreign currencies, was down 1.2% since the last Bank of Israel rate announcement on August 28.

JP Morgan economist Yarkin Cebeci said he expects a 15-point reduction Monday to help weaken the shekel. The currency has gained 6.5% against the dollar this year.

On Friday, the dollar lost 0.3% against the shekel to a representative rate of 3.481.

Meanwhile, Israel’s budget deficit is running at 3.8% of gross domestic product, well above the target. There is little the government can do to reduce it until a new government is in place – a process that could take until late in the year or early 2020.

“With no fiscal consolidation in sight, I doubt the monetary policy committee wants a looser monetary policy,” said Jonathan Katz, chief economist at Leader Capital Markets.

Amir Kahanovich, chief economist at Excellence Investment House, projected a possible cut at the next meeting in late November and negative rates in 2020.