Israel’s central bank governor said on Tuesday he expected one or two interest rate cuts in the second half of the year, a sign of confidence that domestic inflation will ease in the coming months.
Bank of Israel Governor Amir Yaron told CNBC’s Dan Murphy at the World Economic Forum in Davos that inflation hit 3.2% in December, “still 1% above us.” to the 3% target”.
“We expect (inflation)… to rise in the first half of the year, partly because of taxes and partly because, as the recovery takes place, we see demand changing faster than supply constraints,” Labor Market , he said.
But while the bank expects costs to rise in the first half, “we hope (inflation) will balance out and slow on its own in the second half,” Yaron said. “We think one or two cuts in the second half are feasible as inflation should be on target.”
Ratings agencies Fitch and Moody’s assessed the latest ceasefire progress between Israel and Hamas on Tuesday. Moody’s said the deal would reduce downside risks to Israel’s economy and finances, while Fitch said a durable ceasefire would mitigate Israel’s credit risks, although its fiscal position would remain weaker than before the war.
“A durable cessation of the war in Gaza would reduce risks from the negative outlook on Israel’s ‘A’ sovereign rating,” Fitch said in a report on Tuesday.
The central bank chief also said he expected Israel’s GDP growth to be 4% in 2025 and 4.5% in 2026, higher than his forecast of 0.6% growth in 2024 – “as long as we don’t see the situation further upgrade.
On January 18, 2025, hundreds of people gathered in Tel Aviv, Israel, to demonstrate, demanding that the hostages return home immediately once the ceasefire comes into effect.
Nir Kedar | Anadolu | Getty Images
“I hope the ceasefire is a turning point away from that terrible day on October 7 (2023),” Yaron said. “All the trouble that we’re seeing, people are seeing both sides… I think if It has a lasting impact, it should pave the way for regional arrangements that, you know, promote recovery and, more importantly, promote sustainable security, will provide economic growth that will obviously help the Israeli economy, but not just the Israeli economy. – I think it will help the whole region.
The ceasefire, brokered by Qatari, Egyptian and US negotiators, is currently in its first phase and will last for 42 days and will see Hamas release 33 Israeli prisoners captured in the attack on October 7, 2023. In exchange for at least 1,700 Palestinians currently being held in Israel.
During this phase, enhanced humanitarian assistance will be deployed to all areas of the Gaza corridor, hospitals and health centers will be repaired, and critical fuel supplies will be brought into the enclave.
Israel spent about 100 billion shekels ($28 billion) on military conflicts in 2024, the Finance Ministry said announced on tuesdaywhich led to a sharp increase in government borrowing and debt. The country’s debt-to-GDP ratio rose from 61.3% in 2023 to 69% at the end of 2024.
In September, Moody’s downgraded Israel’s credit rating by two notches, from “A2” to “Baa1”, and the outlook at that time was still “negative.” The move comes amid the escalating conflict between Israel and the Lebanese militant group Hezbollah. The warring parties reached a ceasefire agreement in November.
