The Bank of Israel indicated that it may continue to trim short-term interest rates if price pressures stay subdued and if the economic response to the central bank's most recent move is consistent with policymakers' expectations. Deputy governor Andrew Abir said the combination of low inflation in July and the currency's performance supported the decision to reduce the policy rate.
Abir highlighted that July's inflation rate measured 1.5%, a reading that sits below the midpoint of the government's 1% to 3% annual target range. That low inflation outcome was the principal justification for the quarter-point interest rate cut that set the benchmark at 3.25% - a level not seen in nearly four years.
He pointed out that inflationary pressures in Israel have been easing, and that process was aided by the shekel's strength against the dollar. Abir contrasted the domestic decline in inflation with higher price levels observed elsewhere, noting the relative easing within Israel.
Looking ahead, Abir left open the option of further easing, saying that there was no strong reason to halt the process of lowering rates at this stage. He emphasized that any additional reductions would depend on both the persistence of subdued inflation and on how the Israeli economy reacts to the third consecutive 25 basis-point cut.
The deputy governor's comments frame the central bank's approach as conditional - contingent on continued stability in price growth and on incoming economic signals following the latest policy action. Those conditions will guide whether the Bank of Israel moves further to reduce borrowing costs in the period ahead.
Key takeaways
- July inflation measured 1.5%, beneath the midpoint of the government's 1% to 3% target range.
- The Bank of Israel cut its benchmark interest rate by 25 basis points to 3.25%, a near four-year low.
- Future rate reductions are conditional - they depend on continued low inflation and on the economy's reaction to the third consecutive cut.