The Bank of Israel left open the possibility of further easing of short-term interest rates provided price pressures continue to be contained and the economy reacts appropriately to a third successive cut, Deputy Governor Andrew Abir said on Tuesday.
Abir told Reuters that the central bank's most recent quarter-point reduction was driven principally by a low inflation print of 1.5% in July. That figure sits below the midpoint of the government’s annual inflation target range of 1% to 3%, the deputy governor said, and helped justify trimming the benchmark rate to 3.25% - its lowest level in nearly four years.
He also noted the contribution of the shekel's strength against the dollar to the downward pressure on prices. In Abir's assessment, Israel's inflation trajectory was moving lower even as many other countries continue to see higher price growth.
Reflecting the central bank's posture after the vote, Abir said: "We didn’t really see a compelling reason not to continue with the process of reducing interest rates." The comment followed the decision to implement a third consecutive reduction in the policy rate.
Context and implications
The statements emphasize two proximate drivers cited by officials for the recent easing: the July inflation reading of 1.5% relative to the government's 1% to 3% target band, and exchange-rate dynamics tied to a stronger shekel. The Bank of Israel's willingness to continue the reduction process appears conditional on both the stability of price pressures and observable economic responses to the latest cut.
While the central bank has made a policy move by lowering the benchmark rate to 3.25%, Abir's remarks underline that further action will depend on incoming data and economic developments rather than a preset path.
Summary of the decision
- The Bank of Israel implemented a quarter-point cut that reduced the policy rate to 3.25%.
- July inflation registered at 1.5%, below the midpoint of the government's 1% to 3% target.
- Officials noted the role of a stronger shekel against the dollar in helping to lower inflation.