CAUTIOUS MONETARY POLICY NEEDED DUE TO WAR: BANK OF ISRAEL

Mon 08 July 2024:

Stubborn inflation and Israel’s high risk premium due to its war on Gaza mean it will be difficult to reduce interest rates in the near future, Bank of Israel Deputy Governor Andrew Abir has said.

“If it hadn’t been for the war, interest rates would have been considerably lower by today,” Abir told Reuters after the central bank held the line on interest rates for a fourth time in succession.

“Geopolitical risk has put us into a situation where we need to be very cautious on monetary policy … And the inflation trajectory has certainly been higher than it would have been otherwise.”

Israel’s war on Gaza has raged for nine months and changed the economic landscape, keeping inflation higher than it would normally be while investors are paying a higher premium for Israel’s bonds due to the geopolitical uncertainty.

Though inflation stands at 2.8 percent, within the government’s 1-3 percent target range, forecasts suggest it will rise further before easing again.

“We’re going to be very cautious about reducing interest rates before we see signs it is coming back in,” Abir said.

He noted that wages were still rising and the economy was proving more resilient than expected.

SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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