The Monetary Committee decides on November 25, 2024  to leave the interest rate unchanged at 4.5 percent | בנק ישראל - הבנק המרכזי של ישראל
Central bank: boi | Type: statement | Date: 2024-11-25

The Monetary Committee decides on November 25, 2024 to leave the interest rate unchanged at 4.5 percent
In view of the continuing war, the Monetary Committee’s policy is focused on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.
25/11/2024
The continuing geopolitical uncertainty continues to pose difficulties for economic activity and is delaying the economy’s return to the level of activity that characterized it prior to the war.
Inflation in the past 12 months is 3.5 percent, above the upper bound of the target, and it is expected to increase in the coming months. Inflation expectations from the various sources for one year and beyond are within the target range, in its upper portion.
Since the last interest rate decision, the shekel has strengthened, by 0.9 percent against the US dollar, by 6.4 percent against the euro, and by 3.7 percent in terms of the nominal effective exchange rate.
The economy grew by 3.8 percent in annual terms in the third quarter, but the negative gap relative to the trendline remains, mostly due to supply constraints. The most recent indicators of economic activity provide a mixed picture regarding the fourth quarter, with a slight tendency to weakening.  The labor market remains relatively tight, despite some moderation in recent months.
In the housing market, the increase in home prices moderated. However, constraints on activity in the construction industry remain significant.
The economy’s risk premium, as measured by the CDS spread, declined significantly during the reviewed period, although it remains very high relative to the prewar period.
In view of the continuing war, the Monetary Committee’s policy is focused on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.
The continuing geopolitical uncertainty continues to pose difficulties for economic activity and is delaying the economy’s return to the level of activity that characterized it prior to the war.  According to the most recent indicators, the economy is continuing to recover at a moderate pace, but the negative gap relative to the trendline remains.  In the financial markets, Israel’s risk premium declined, although it remains high.
The Consumer Price Index for October increased by 0.5 percent after the index for September declined by 0.2 percent. Inflation in the past 12 months stands at 3.5 percent, which is above the upper bound of the target range, similar to previous months (
Figure 1).
Net of energy and fruit and vegetables, inflation is at a year over year pace of 3.3 percent
(Figure 2)
. The pace of inflation in the nontradable components in the past 12 months remained stable at 3.9 percent, and the pace of inflation in the tradable components in the past 12 months is 3.0 percent
(Figures 4)
. According to forecasters’ projections, inflation will continue to increase at the beginning of 2025, partly in view of the expected increase in VAT, and is then expected to moderate toward the upper bound of the target in the second half of the year
(Figure 5)
. Inflation expectations for the coming year from the various sources declined into the target range, close to the upper bound (
).  Expectations for the second year onward are in the upper half of the target range (
In the Committee’s assessment, there are several risks of a possible acceleration of inflation: geopolitical developments and their impact on economic activity, prolonged supply limitations, volatility of the shekel, and fiscal developments.
Since the previous interest rate decision, the shekel has depreciated by 0.9 percent against the US dollar, by 6.4 percent against the euro, and by 3.7 percent in terms of the nominal effective exchange rate.
National Accounts data show that following growth of 0.3 percent in annual terms in the second quarter, GDP expanded by 3.8 percent in the third quarter in annual terms (
).  The underperformance from the long-term growth trend remains similar, at 3.6 percent.  Business output grew by 5.4 percent in annual terms in the third quarter, and the gap from its trendline is 4.6 percent.  A significant share of the gap in business sector output is explained by supply limitations, mainly in view of the lack of non-Israeli workers, the absence of workers due to reserve service and limitations on employment in the north of the country, alongside the significant decline in incoming tourism.  Third-quarter growth was across the board except for public consumption, which declined.  Private consumption grew by 8.6 percent in the third quarter, and is 3.7 percent higher than it was prior to the war.  Investment also grew, but it remains lower than before the war.  Public consumption (excluding defense imports) contracted by 8.6 percent in the third quarter in annual terms.
The most recent indicators of economic activity point to a mixed picture regarding the level of economic activity in the fourth quarter, with a slight tendency toward weakening.  The most recent data on credit card use show some moderation (
).  A geographic analysis of data from the credit card clearinghouse regarding credit card expenditures in October 2024 indicates a significant recovery in southern localities, with a sharp decline in the north where missile attacks intensified. The aggregate balance of the Central Bureau of Statistics Business Tendency Survey for October continued to decline slightly, and is lower than it was prior to the war (
).  Similar to credit card purchases, the October Business Tendency Survey indicates a significant decline in activity in the Haifa area (
Figure 12)
.  The October Survey also shows that in the construction and services industries, the supply constraint remains dominant, while the demand constraint remains dominant in the hotels industry. Foreign trade data are recovering.  National Accounts data for the third quarter show that goods and services exports increased by 5.2 percent, and civilian imports (excluding diamonds, ships, and aircraft) increased by 26.7 percent in annual terms, remaining just slightly lower than its level from last year.  Foreign trade data for October show that goods exports increased by 7.6 percent, and goods imports declined by 2.8 percent.  Capital raised in the high-tech sector increased in the third quarter, and the pace in the fourth quarter thus far indicates continued expansion (
The labor market remains relatively tight, despite some moderation in recent months. The job vacancy rate declined slightly in October. It remains higher than its prewar level, although it has declined since the beginning of the year (
). The participation rate of those aged 15 and over remained stable at 62.6 percent, and the employment rate remained stable at 61 percent (
Figure 14a
).  Temporary absences due to reserve military duty increased to 1.6 percent in October, compared with 0.6 percent in September. The broad unemployment rate declined to 3.4 percent in October (
Figure 14b
). Nominal wages continued to increase, although at a more moderate pace, and real wages are below the long-term trend
(Figure 15)
Activity in the construction industry is recovering gradually, but limitations on activity in the industry in view of the war, mainly manpower limitations, remain significant (
). The pace of home price increases is moderating.  In August–September, home prices declined by 0.1 percent, putting the annual pace of increase at 6.1 percent.
(Figure 18)
. In October, new mortgage borrowing totaled NIS 6.9 billion (
Figure 19b
).  The Index of Home Prices increased by 0.2 percent in September and remained unchanged in October.  In the past 12 months, it has increased by 3.5 percent.
In the capital market, domestic equity indices increased sharply during the reviewed period, even when compared with most of the main global equity indices (
). Government bond yields declined sharply (
). Israel’s risk premium, as measured by the 5-year CDS spread, declined significantly during the reviewed period, although it remains very high compared with the prewar period.  The spread between dollar-denominated Israeli government bonds and US Treasury bills narrowed (
).  Outstanding business credit continues to grow, mainly due to bank loans and tradable bonds.
Globally, the purchasing managers indices (PMI) for September indicated a mixed sentiment.  In the US, the services PMI continued to increase, signifying expansion, while in the eurozone it declined, indicating expectations of a contraction in activity.  World trade increased by about one percent in August, after remaining unchanged in the previous month.  Since the previous interest rate decision, oil prices declined by about 5 percent, with a barrel of Brent crude trading around $75.  There was a mixed trend in global equity markets, with significant increases in the US markets.  In the US, third quarter growth was 2.8 percent, indicating strength of the American economy led by strong private consumption, although the labor market continues to cool.  In the eurozone, third quarter growth surprised to the upside, but looking forward, the recovery in Europe is expected to remain moderate.  In China, third quarter growth also surprised to the upside, but the most recent data remain relatively weak.  Inflation trends indicate convergence toward the central bank targets.  In the US, annual inflation remained unchanged, and the Consumer Price Index increased by 0.2 percent in October, reaching an annual rate of 2.6 percent.  The Core CPI increased by 0.3 percent in October, with the annual pace of increase reaching 3.3 percent.  Inflation in the eurozone increased from 1.7 percent to 2.0 percent in October, and the core index remained unchanged at 2.7 percent in annual terms.  In view of the convergence toward the inflation targets, central banks are continuing to lower interest rates. In line with expectations, the Federal Reserve lowered its interest rate by an additional 25 basis points, and during the reviewed period, the market has priced in fewer interest rate cuts looking forward. The ECB continued its path of lowering the interest rate, with a 25 basis point reduction (
The minutes of the monetary discussions prior to this interest rate decision will be published on December 9, 2024. The next decision regarding the interest rate will be published on Monday January 6, 2025.
Interest rate decision dates for 2024 and 2025 are available at: