Governor signals: Not certain there will be a rate cut in September

Bank of Israel Governor Amir Yaron signaled in an interview with Bloomberg that it is not certain there will be an interest rate cut in September, leaving all options open. He cited growing uncertainty in the labor market, inflation, geopolitical and fiscal risks. This follows a second consecutive rate cut in July to 3.5%. Yaron expects inflation to accelerate to 2% in the coming months, despite a slowdown to 1.5%. He emphasized the economy's resilience and the fiscal challenge of managing the 'fiscal trilemma'.

Bank of Israel Governor Amir Yaron signaled in an interview with Bloomberg that it is not certain there will be an interest rate cut in September, leaving all options open. He noted that since the previous decision in July, uncertainty has only grown, and the bank will need to take into account the labor market, inflation, geopolitical risks, and fiscal risks. In July, after a second consecutive cut, the governor signaled that further monetary easing would be possible if inflation expectations continued to decline. The bank's research department forecast that the rate would stand at 3% in a year, indicating two more cuts from its current level of 3.5%. The bank is under growing pressure from high-tech exporters and from Finance Minister Bezalel Smotrich to lower the rate to support an economy affected by the strengthening shekel. Recent inflation data, published on Friday, show that annual inflation slowed to 1.5%, but Yaron expects it to accelerate to 2% in the coming months. He noted that growth in the second quarter was very strong, and that Israel's economy remained resilient throughout the war, with credit card spending and investment flows into high-tech as signs of strength. Yaron emphasized the fiscal challenge of managing the 'fiscal trilemma' – returning the national debt to a downward path, managing defense spending, and investing in growth – for any government formed after the October elections.