The Israeli economy has been suffering from great pressure since the beginning of the war, which has caused it to lose about 20% of its gross domestic product (Al Jazeera)

The Central Bank of Israel will announce its decision on the interest rate next Monday, after reducing it by 0.25% to 4.5% at the beginning of last January, amid conflicting expectations between the likelihood of the reduction given the economic contraction during the last quarter of last year by approximately 20%, and estimates that The reduction at the current stage must be calculated to avoid creating a gap between interest rates in Israel and the rest of the Western world, which could endanger financial stability and the shekel, according to the Israeli economic newspaper Globes.

Inflation in Israel declined to an annual rate of 2.6% last month, and the Israeli newspaper quoted the chief economist at Mitav Dash Investment Company, Alex Zabijinski, as saying that the decline in inflation since the beginning of the war has become greater and greater, stressing that without increasing the prices of fruits and vegetables Annual inflation in Israel is only 2.2%.

She pointed out that the GDP figures for 2023 - which were released this week showed a contraction of Israel's economy by 20%, on an annual basis, in the last quarter of the year - contributed to estimates that the economy needs a boost from the Israeli Central Bank to help it recover.

The Israeli economy is suffering greatly due to the war that the occupation has been waging in the Gaza Strip since the seventh of last October.

Due to the decline in inflation and the contraction of the economy, Zabiezinski believes that the bank will reduce interest rates again this month, at a time when Goldman Sachs expects that the Bank of Israel will reduce interest rates next week to a rate of 4.25%, according to the newspaper.

Risk of escalation

On the other hand, the newspaper quoted the chief financial markets strategist at Bank Hapoalim, Modi Shefrier, as saying, “We expect the interest rate to remain unchanged. The reduction to 4.25% will not take place until April,” adding that the main reason for waiting is that the bank expects Limited interest reductions.

The research department at the Bank of Israel expects the interest rate during the current year to range between 3.75% and 4%, according to the newspaper, which means two or three cuts will be made in the 7 interest discussion meetings during 2024.

Shafrier noted that both Governor Professor Amir Yaron and his deputy, Andrew Aber, made it clear after the recent interest decision that “the rate of interest reduction will be calculated and must be done carefully, because the war is continuing. The matter is not over yet and there is a real danger of escalation with Hezbollah.”

The US Federal Reserve was expected to cut interest rates for the first time in March, but its Chairman Jerome Powell said that members of the Open Market Committee (responsible for monetary policy in the United States) did not expect an imminent reduction, and at the same time, cuts in Europe were postponed. also.

Chefrier points out that the probability of a rate cut in the euro zone in March has decreased significantly, after zero growth in the last quarter of 2023.

Source: Israeli press