Bank Hapoalim: No Interest Rate Cuts Expected in the Coming Year Amid Uncertainty
Bank Hapoalim economists do not foresee interest rate cuts in the coming year despite low inflation, citing shekel depreciation, upcoming political elections, and potential tax hikes.
Despite a sharp drop in the Consumer Price Index in September and low inflation, economists at Bank Hapoalim do not expect an interest rate cut in the coming year.
In a review published today by the bank's economic department, it was noted that the probability of an interest rate reduction over the next year is similar to the chance of a hike. This Wednesday, October 21, Bank of Israel Governor Prof. Amir Yaron will announce the central bank's next interest rate decision.
Interest Rate and Economic Outlook
The interest rate currently stands at 3.25%, following a quarter-percentage-point cut in the previous decision. Alongside the decision, to be published at 16:00, the bank will also present an updated macroeconomic forecast, and the governor will hold a press conference.
Inflation over the past 12 months totaled 1.6%, falling within the Bank of Israel's price stability target of 1%-3%. Nonetheless, the bank's economists raised their inflation forecast for the next 12 months to 2.3%.
Inflation Drivers and Shekel Depreciation
Among the reasons for the upward revision are:
-
The trend of shekel depreciation over the past five months.
-
The possibility of tax hikes following the formation of a new government.
-
An expected rise in fuel prices due to an increase in the blue tax.
According to the review, the government reduced the blue tax on fuel, thereby stabilizing its price in September and October. The bank estimates that in the absence of budgetary sources for continued reductions, fuel prices will begin to rise gradually starting in November.
"Despite low inflation, the markets do not price in interest rate cuts in the coming year. We tend to agree with this assessment, mainly in view of expected interest rate hikes in most developed countries. The depreciation of the shekel exchange rate and political uncertainty are expected to influence the decision as well."
According to Bank Hapoalim's monthly forecast, the October index is expected to rise by 0.2%, the November index to drop by 0.1%, and the December index to rise by 0.2%. Overall inflation for 2026 is projected at 1.9%, while the 12-month forward outlook stands at 2.3%.
