Israel Central Bank Stands Pat on Interest Rates Amid Iran Conflict

Bank of Israel Interest Rate Decision Expected to Remain Steady

Market Overview The Bank of Israel is set to maintain its base rate at 4% on Monday, according to a survey of economists. This decision comes amidst concerns over inflation, fueled by the ongoing US-Israeli conflict with Iran and its impact on the global economy.

Economic Projections and Press Conference The Bank of Israel will release updated macroeconomic projections for the first time since the conflict began on February 28. Governor Amir Yaron will hold a press conference at 4:15 pm local time to discuss the latest developments.

Market Volatility The Tel Aviv Stock Exchange experienced its largest declines in almost a year on Friday, with the benchmark Tel Aviv-35 index falling 3.8%. All gains since the conflict started were wiped out.

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Global and Domestic Inflation Concerns The conflict has raised fresh risks for the oil market, with the Strait of Hormuz effectively shut down. This has led to increased inflation expectations in Israel, with Bank Hapoalim raising its 12-month forecast to 2.2%, above the Bank of Israel's target range of 1% to 3%.

Interest Rate Projections While some analysts expect a single cut of 25 basis points over the next year, Hapoalim forecasts the base rate could drop to 3.5%. The Bank of Israel's 12-month interest rate projections will be a key focal point of Monday's meeting.

Economic Growth Expectations Analysts are revising down their growth expectations, with Rafael Gozlan of IBI Investment House projecting growth at 4% with a downward risk, and Hapoalim expecting an expansion of just 3% if the war ends by the end of the month.

Budget and Deficit The Israeli parliament voted on the 2026 state budget, which includes a 39 billion shekels ($12.4 billion) supplement for defense. The target deficit was revised to 4.9% of GDP. Fitch Ratings affirmed Israel's sovereign rating at A with a negative outlook, citing a potential deficit of 5.7% of GDP this year due to larger military spending.

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