Citi: No rate cut next week but two more by Q1 2027

Citi predicts the Bank of Israel will hold its interest rate at 3.5% next week, despite a 50% market expectation of a cut. The investment bank cites a lack of urgency and balanced inflation risks. However, Citi still forecasts two additional 25-basis-point cuts by Q1 2027, bringing the rate to 3%.

Citi predicts the Bank of Israel will hold its interest rate at 3.5% at its upcoming decision next week, bucking market expectations that had priced in a 50% chance of a cut, which later moderated to 40% after the dollar strengthened past NIS 3/$. The global investment bank argues that while inflation fell to a five-year low of 1.5% in July, there is no urgency to loosen policy further. Citi notes that risks to inflation have become more balanced, with the tight labor market, fiscal expenditure, and global energy prices already present in May. The bank still expects two additional 25-basis-point cuts by Q1 2027, bringing the rate to 3%. Israeli economists are divided: Harel Insurance estimates rates will stay unchanged, citing geopolitical and budgetary risks, while Meitav supports an immediate cut, pointing to the moderate inflationary environment and shekel strength.

Citi: No rate cut next week but two more by Q1 2027