Rates on hold with a loosening bias

ISRAEL - In Brief 27 Nov 2023 by Jonathan Katz
Rates on hold with a loosening bias Policy rates remained unchanged today at a level of 4.75%. Inflation has moderated but remains slightly above target, and the economy is recovering in some components of activity. During the press conference, Governor Yaron stressed that monetary loosening will follow further FX stabilization and inflation moderation in order to focus on supporting growth. There is still tremendous geopolitical uncertainty, and therefore, monetary caution is still necessary. Nevertheless, the Bank of Israel revised its macro forecast including a lower policy rate forecast (as we expected) of 3.75%-4% in Q424 (previously 4.0%-4.25% by Q324), an important message for markets. In addition, the GDP forecast was revised to 2.0% for both 2023 and 2024 (previously 2.3% and 2.8% respectively), the unemployment forecast pushed higher, the fiscal deficit higher to 5.0% (from 3.5%) in 2024, and the debt/GDP to 66% in 2024. The press conference gave a clear impression that monetary loosening is imminent (we think at the next rate decision) assuming further shekel stabilization. The Governor stated that the Israeli risk premium need not return to pre-hostility levels in order to commence loosening.

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