Israel's Central Bank Expected to Cut Interest Rates Amid Geopolitical Developments

As the United States and Iran appear to be nearing an agreement to end the ongoing conflict, the Bank of Israel is anticipated to lower interest rates. According to Jin10, a survey of 14 economists revealed that eight expect the central bank to reduce the benchmark interest rate by 25 basis points to 3.75% on Monday. Rafael Gozlan, Chief Economist at IBI Investment House, stated that inflation stabilizing near the midpoint of the target range at 1.9%, along with the significant appreciation of the shekel, supports a slight rate cut. The decision will depend on geopolitical developments; if there is no major escalation, a rate cut is expected, whereas a deterioration in the situation may lead to maintaining the current rate. The Israeli shekel closed at 2.9 shekels per U.S. dollar last Friday, marking its strongest level in over thirty years, further reinforcing market expectations of moderate future inflation. According to a survey released by the Bank of Israel on May 19, the average inflation expectation for the next 12 months has decreased from 2.3% to 1.8%. Since the last interest rate decision by the Monetary Policy Committee at the end of March, the shekel has appreciated by 8%, with a cumulative increase of nearly 24% over the past year. Other factors supporting a rate cut include the slow recovery of Israel's economy from the conflict with Iran. Even if an agreement is reached, economic growth is not expected to accelerate significantly.