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Israel’s central bank governor said Tuesday that he sees one or two potential interest rate cuts in the second half of this year, suggesting confidence that domestic inflation will ease in the coming months.
Inflation, which hit 3.2% in December, “is still above our target, which is between 1% and 3%,” Bank of Israel Governor Amir Yaron told CNBC’s Dan Murphy at the World Economic Forum in Davos.
“We expect (inflation) … in the first half of the year to increase, partly because of taxes, and partly because, as the recovery occurs, we are seeing demand moving faster than restrictions of supply”, like those of the labor market, he said.
But while the bank expects costs to rise in the first half of the year, “in the second half, we expect (inflation) to balance out and moderate,” Yaron said. “We see one or two cuts feasible in the second half of the year, since inflation is assumed to reach the target.”
Rating agencies Fitch and Moody’s weighed in on the latest developments on the ceasefire between Israel and Hamas on Tuesday. Moody’s said the deal will reduce downside risks to Israel’s economy and finances, while Fitch said a lasting ceasefire will ease Israel’s credit risks, although its fiscal position will remain weaker than before the war. .
“A lasting cessation of the war in Gaza would reduce the risks captured by the Negative Outlook on Israel’s ‘A’ sovereign rating,” Fitch’s report said Tuesday.
The central bank governor also said he anticipates Israel will record GDP growth of 4% in 2025 and 4.5% in 2026, compared to his expectations for 0.6% growth in 2024, “as long as Let’s see more escalations revive.” “
Hundreds of people gathered in Israel to demonstrate demanding the immediate return of hostages to their homes after the ceasefire came into effect, on January 18, 2025 in Tel Aviv, Israel.
Nir Keidar | Anadolu | fake images
“I hope that the ceasefire will be a turning point from October 7 (2023), that horrible day,” Yaron said. “All the problems that we’ve seen, people see them on both sides… I think if it has a lasting effect, it should pave the way for regional agreements that, you know, facilitate rehabilitation and, more importantly, sustainable security. That “will provide economic growth, which will obviously help the Israeli economy, but not only the Israeli economy; I think it will help the region as a whole.”
The ceasefire agreement, brokered by negotiators from Qatar, Egypt and the United States, is currently in its first phase, which will last 42 days and will see Hamas release 33 Israeli captives captured during the October 7, 2023 attacks. , in exchange for at least 1,700 Palestinians currently imprisoned in Israel.
During this phase, reinforced humanitarian aid will be deployed in all parts of the Gaza Strip, while hospitals and health centers will be rehabilitated and critical fuel supplies will reach the enclave.
Israel spent approximately 100 billion shekels ($28 billion) on military conflicts in 2024, according to its Finance Ministry. announced on tuesdaywhich has considerably increased the government’s indebtedness and debt. The country’s debt-to-GDP ratio increased from 61.3% in 2023 to 69% at the end of 2024.
In September, Moody’s downgraded Israel’s credit rating two notches, from “A2” to “Baa1,” keeping its outlook at “negative” at the time. He based his move on the escalation of the conflict between Israel and the Lebanese militant group Hezbollah. The warring parties reached a ceasefire agreement in November.
