BOI Monetary Committee decides to reduce interest rate

In view of the war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the continued convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.

• The war is having significant economic consequences, both on real economic activity and on the financial markets. There is a great amount of uncertainty with regard to the expected severity and duration of the war, which is in turn affecting the extent of the impact on activity.
• The pace of inflation continues to decline, and an analysis of the inflation dynamic, measured both quarterly and semiannually, also shows that the pace of inflation is moderating. Inflation expectations from various sources are that inflation will enter the target range in the first quarter of the year.
• In the financial markets, there is has been a sharp recovery following the declines at the beginning of the war. Since the previous interest rate decision, the shekel strengthened by 2.7 percent against the US dollar, by 1.7 percent against the euro, and by 2 percent in terms of the nominal effective exchange rate.
• The Bank of Israel Research Department published its staff forecast, and in its estimation, GDP will grow by 2 percent in each of 2023 and 2024, and by 5 percent in 2025. In view of the war, the forecast features an especially high level of uncertainty, including with regard to decisions that the government will need to make regarding how the budget will deal with the defense and civilian needs arising from the war.
• Indicators of economic activity and the state of employment point to a gradual recovery following the sharp decline that took place with the outbreak of the war, but there is a lot of variance between industries.
• In the past 12 months, home prices have declined by 1.3 percent. The volume of activity in the housing market continues to moderate, and the industry is experiencing difficulties as a result of the war. 
• In the credit market, the slowing trend of bank credit to businesses and households continues, in parallel with the general slowdown in economic activity.
• Globally, economic activity and inflation in the major countries are moderating, as world trade continues to indicate weakness and there are assessments that central banks will begin a process of monetary accommodation during 2024.