A sharp rate cut (if any) next week appears off the table

ISRAEL - In Brief 17 Oct 2023 by Jonathan Katz

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Deputy Governor Andrew Abir spoke with the macro forecasters today, stressing the importance of market stability over other central bank goals (at present). It was clear from his words and the following statement, that a sharp rate cut on Monday is off the table (we cannot rule out a minor 0.25% cut). His words to us were clearer than this statement that they are concerned about strong pressure for shekel weakness if they cut sharply next week. I still expect monetary easing in the upcoming months, due to the expected deceleration both in activity and inflationary environment. Currently, with much uncertainty regarding the possible upcoming developments, Abir is more concerned about shekel stability, despite the BoI active in selling FX. “The Bank of Israel’s policy is focused on stabilizing the markets and creating maximal certainty for the economy and the public at this time. The Bank has started using a dedicated tool to stabilize the foreign exchange market, which has contributed to stabilizing and calming other markets as well, and we aim that the other monetary policy tools will not pose a challenge to this aim in the immediate term. As Governor Yaron said earlier this week in his speech for the G30 group: "The main inflationary risk in the past nine months, and now even more so, is depreciation of the shekel".