Bank of Israel Governor: September interest rate cut not guaranteed

Bank of Israel Governor, Professor Amir Yaron, signals that another interest rate cut is still on the table, but is not guaranteed. In an interview with Bloomberg Television, Yaron stated that the next interest rate decision, due in about two weeks, will be based on real-time data.

The Bank of Israel's interest rate currently stands at 3.5%, following two consecutive cuts. In July, the bank estimated that in the base scenario, the rate could reach 3% within a year. However, according to Yaron, uncertainty has increased since the previous decision, and committee members must now account for the state of the labor market, inflation, and both geopolitical and fiscal risks.

These factors are weighed against inflation data, which slowed to 1.5% in July. However, Yaron does not expect this low level to persist for long:

«I expect it to accelerate to 2% in the coming months», — he said, referring to the midpoint of the government's inflation target.

Conversely, the state of the Israeli economy provides the central bank with reasons to consider further easing. Yaron noted that growth in the second quarter was «very strong» and emphasized the resilience demonstrated by the economy despite the war and ongoing uncertainty.

Yaron also addressed the economic challenges facing the government to be formed after the October elections. He noted that the government will need to return public debt to a downward trajectory while simultaneously maintaining defense spending and investing in growth engines. «Managing these three is going to be difficult», — he said.