Bank of Israel holds rates but worried by possible inflation acceleration
JERUSALEM: The Bank of Israel left short-term interest rates unchanged for an 11th straight meeting on Monday, saying high inflation remains the chief concern while economic activity continues to recover moderately despite the war in Gaza.
The central bank kept its benchmark rate at 4.50%.
"In view of the continuing war, the Monetary Committee's policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity," it said.
It added the rates path would be based on "the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy".
With taxes and electricity and water prices rising at the start of this year and airfares increasing last month as foreign airlines cancel flights to Tel Aviv, the annual inflation rate gained to 3.6% in April - above expectations of 3.1% - from 3.3% in March and remained above the government's 1%-3% annual target.
"In the Committee's assessment, there are several risks for a possible acceleration of inflation or for it not converging to the target range: geopolitical developments and their impact on economic activity, supply constraints, worsening global terms of trade, and volatility of the shekel," the central bank said.
After the decision, Israel's shekel was 1.1% stronger versus the dollar and is up 2.1% this month.
The Bank of Israel reduced the rate by 25 basis points in January 2024 after inflation eased and economic growth slowed amid the Gaza war, but has kept policy steady since and said it was in no rush to ease again while inflation remained above target.
Based on bond yields, financial markets still expect inflation to ease to 1.8% in the coming year, according to Bank of Israel data. They also expect two rate cuts later in 2025 as projected by the central bank's own economists.
In keeping rates steady, the Bank of Israel also cited economic activity rebounding moderately and a tight labour market, which has started to moderate.
It mentioned the risk premium - as measured by the 5-year credit default swap price and by the spreads on dollar-denominated government bonds - had declined but remains above prewar levels.
The economy grew by an annualised 3.4% in the first quarter after a 1% expansion for all of 2024 due to the war.
All 14 analysts polled by Reuters had expected no rate move on Monday.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The National
6 hours ago
- The National
Wall Street lifted by upbeat US jobs report and Tesla rebound
Wall Street closed higher on Friday, buoyed by a better-than-expected US jobs report and a rebound in Tesla Motors shares, although concern about the Federal Reserve's rates policy remained. The Labour Department reported on Friday that the American economy added 139,000 jobs in May, slower than previous months but beating analyst estimates, with the unemployment rate holding steady at 4.2 per cent. It also indicated that wages grew at a solid pace, which may mean the Fed is unlikely to cut interest rates – something that US President Donald Trump has demanded from the US central bank. Mr Trump on Thursday increased the pressure on Fed chairman Jerome Powell, urging him to cut interest rates by a full percentage point. Mr Powell so far has resisted the calls from the White House and maintains that policy decisions will be data dependent. He met Mr Trump at the White House last week and was firm that rate decisions will be made 'as required by law'. 'The labour market's resilience puts the Fed in a difficult spot: inflation pressures remain sticky and the cooling many expected simply hasn't materialised in the data that matters most,' said Nigel Green, chief executive of Dubai-based financial services firm deVere Group. 'This report puts another nail in the coffin for any talk of rate cuts in the summer. The Fed has said time and again it needs to see weakness in the labour market to move. This isn't weakness. It's strength with staying power.' Investors also continue to monitor the tariff situation between the US and China. After imposing substantial tit-for-tat levies on imports, the world's two biggest economies agreed to a detente on their trade war on May 12. Talks appear to be progressing: Mr Trump on Thursday spoke with Chinese President Xi Jinping, and on Friday Mr Trump said trade officials from Washington and Beijing will meet in London on Monday to resume discussions. 'Investors couldn't care less. Dips in equity markets are still seen as opportunities to buy cheaper. And while the data is fun to watch, it remains secondary to the blind bullishness,' said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. 'That's the takeaway from the post – April 2 rally: the world may be wobbling, but markets march on,' she added, referring to the day Mr Trump announced his sweeping global tariffs programme. On Wall Street, the S&P 500 and Dow Jones Industrial Average both settled 1 per cent higher, while the tech-heavy Nasdaq Composite gained 1.2 per cent. Tesla, whose stock plummeted 14 per cent on Thursday in response chief executive Elon Musk's escalating public feud with Mr Trump, rebounded to close 3.7 per cent higher. The Texas-based company's shares rose by as much as 6 per cent. For the week, the S&P was up 1.5 per cent, the Dow added 1.2 per cent and the Nasdaq rose 2.2 per cent. Year-to-date, the indices are up 2 per cent, 0.5 per cent and 1.1 per cent, respectively. In Europe, markets were mostly up after the US jobs report eased fears of an economic slowdown. London's FTSE 100 closed up 0.3 per cent, boosted by banking stocks. Paris' CAC 40 added 0.2 per cent, while Frankfurt's DAX retreated 0.1 per cent. Earlier in Asia, major indices were mixed, with Tokyo's Nikkei 225 adding 0.5 per cent, Hong Kong's Hang Seng index declining 0.5 per cent and the Shanghai Composite closing flat. In commodities, oil prices jumped nearly 2 per cent on Friday to post their first weekly gain in three weeks amid hopes for a US-China deal on tariffs and the jobs report. Brent rose 1.73 per cent to settle at $66.47 a barrel, while West Texas Intermediate closed 1.91 per cent higher at $64.58 a barrel. Gold, meanwhile, fell more than 1 per cent on investor concerns that the US jobs report won't sway the Fed to cut rates soon. The precious metal, a hedge against inflation, declined nearly 1.3 per cent to $3,311.70 an ounce.
Middle East Eye
18 hours ago
- Middle East Eye
Israel has sold record amount of debt in US since war on Gaza erupted: Report
Israel has sold a record amount of debt in the US since its war on Gaza erupted on 7 October 2023, according to a report by Bloomberg on Friday. The government of Israel's US-based bond broker, Israel Bonds, says it has sold $5bn worth of debt in the last twenty months. The level of bond issuance is more than double that raised by Israel Bonds, in similar time periods previously. Israel's war on Gaza started after the 7 October 2023 Hamas-led attacks on southern Israel killed around 1,200 people. Israel responded by pummelling the Gaza Strip and invading it. More than 54,000 people, mainly women and children, have been killed in the Israeli attacks, and the population is facing "imminent famine", the United Nations says. Israel Bonds is affiliated with Israel's finance ministry and sells bonds inside the US to both retail and institutional investors. The starting price for non-tradable retail Israeli bonds is as low as $36. A five-year Israeli bond has a yield between 4.86 percent and 5.44 percent, according to the Bloomberg report. New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters Along with its war on Gaza, Israel fought a devastating war with Hezbollah in Lebanon and launched widespread strikes on Syria. In 2024, it engaged in two rounds of direct missile and drone attacks with Iran. Israel's financing needs have soared as it looks to fund its military. Local Israeli creditors, including deep-pocketed institutional ones, account for about 80 percent of the government's lending overall. That leaves just twenty percent to come from international debt sales and what Israel Bonds sells in the US. According to the group, local US governments at the state and county level are big buyers in places like New York, Texas, Ohio, and Illinois. Palm Beach County in Florida became one of the world's largest investors in Israeli Bonds in 2024, with about $700m of its $4.67bn portfolio invested there. Israel has faced widespread criticism for its war on Gaza. The International Criminal Court has issued an arrest warrant for Prime Minister Benjamin Netanyahu and former Defence Minister Yoav Gallant for alleged war crimes. Meanwhile, public opinion on Israel has turned sharply negative from France to Japan. However, in March 2024, Israel saw strong demand for its debt among international investors. It sold $8bn in international bonds. Israel enjoys investment-grade ratings from major credit ratings agencies.
Middle East Eye
18 hours ago
- Middle East Eye
Trump-Musk fight creates unprecedented elite power struggle in the US
It is hard to find a historic or contemporary precedent for the battle raging between Donald Trump, the president of the United States, and Elon Musk, the world's richest man. There may be a couple of examples that come close, but nothing that quite captures the current moment. For instance, in 2017, Saudi Arabia's Crown Prince Mohammed bin Salman rounded up his profligate cousins and businessmen at the Riyadh Ritz-Carlton for a royal shakedown. They got into line quickly. And almost two decades before, Russian President Vladimir Putin managed to bend the oligarchs who got rich off post-Soviet capitalism to his will. On its surface, the Trump-Musk feud seems to be over policy. New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters The Tesla chief and former head of DOGE attacked Trump's tax bill this week as a 'disgusting abomination'. Musk was channelling the concerns of deficit hawks in the US, who worry the bill will add trillions to the US debt pile at a time when the dollar has weakened and demand for more US debt is looking stretched. Trump, who has positioned the bill as a do-or-die piece of legislation, said on Thursday during a meeting in the Oval Office with German Chancellor Friedrich Merz, that 'I'd rather have Elon criticise me than the bill,' adding later, 'Elon and I had a great relationship. I don't know if we will anymore.' Then it got nasty. Within hours, Musk was on X calling for Trump's impeachment, to be replaced by Vice President JD Vance. The vice president himself was catapulted to power in part by Peter Thiel, a billionaire tech entrepreneur who mentored and groomed Vance's career in politics. He threatened to form a new political party and stop ferrying Nasa astronauts into space. He said Trump would have lost the US presidential election without his endorsement. And for good measure, insinuated that Trump was linked to convicted sex trafficker Jeffrey Epstein. Trump fired back. He suggested Musk was attacking the bill, not out of patriotic fervour, but because he had snatched away perks for electric vehicles from which Tesla benefits. 'Elon was wearing thin,' Trump said. 'The easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon's Governmental Subsidies and Contracts. I was always surprised that Biden didn't do it!' Trump said in another post on Thursday night, threatening to leverage the power of the presidency against Musk's business empire, which includes Tesla and SpaceX. Tesla shares dropped about 14 percent on Thursday amid the spat. According to Bloomberg's billionaires index, Musk's net worth plunged $34bn that day. Tesla was trading up around five percent on Friday. Silicon Valley vs 'America First' nationalists The Trump-Musk feud is a decidedly American affair - partly performative, very populist, and made for social media. And on that note, Musk has been posting on X, the social media platform he bought before the US election, and Trump has been posting on Truth Social - owned by Trump Media & Technology Group - that was purposely built as a right-leaning competitor to X before Musk bought it. Of course, the US is no stranger to elite power struggles capturing the public's attention, particularly during its rambunctious, early years as a republic. Aaron Burr, a former vice president, famously killed Alexander Hamilton, the one-time treasury secretary, in a dual in 1804. A century later, Teddy Roosevelt rode a populist 'trust busting' wave that pitted him against the gilded elite, making men like JD Rockefeller his foe. But the Trump-Musk feud has key differences. JD Vance's mentor co-founded company that helps Israel generate 'kill lists' of Palestinians in Gaza Read More » The two men had forged an unprecedented alliance that, to a point, symbolised a broader one between Silicon Valley tech entrepreneurs and crypto bros on one side, and working-class "America First" nationalists on the other. While some media reports say that allies of the two men are urging both to reconcile, the standard bearers of "America First" nationalism appear to be egging Trump on and savouring Musk's fall from grace. Steve Bannon, a former Trump advisor whose podcast WarRoom advocates for "America First" positions, called on Trump to seize Musk's company SpaceX and examine the billionaire's immigration status. Musk was born in South Africa. Bannon himself was critical of Trump's tax bill, but he was one of the few supporters who called for tax hikes on the wealthy. 'You're going to have a few of the tech bros and the crypto crowd stick with Elon because you have the cult of Elon. But MAGA will 100% back Trump. You aren't going to have a person in MAGA who will buy a Tesla,' Bannon said. But Musk donated over $250m to Trump's 2024 campaign and has made clear he has no qualms about deploying his cash against those who turn on him within the Republican Party. On Thursday night, Musk wrote, 'some food for thought as they ponder this question: Trump has 3.5 years left as President, but I will be around for 40+ years…' Do Musk and Trump have options? Trump has a history of engaging in brutal public spats, only to mend fences later. US Secretary of State Marco Rubio and Vance both lambasted Trump during his 2016 run for the White House. But the key difference here is that neither of these men had the deep pockets of the world's richest man to endure a battle with the president. To an extent, Musk is a country unto himself. His technology, like Starlink, is hovering over battlefields in Ukraine, while his company ferries Nasa astronauts into space. The knowledge he has gained of Trump's family and the inner workings of the White House would make him a valuable catch for any foreign leader, including US allies. More broadly speaking, the feud is likely to reaffirm a perception among American friends and foes that something within the US system is cracking. In less than one day, the president of the US threatened on social media to use the power of his office against a comrade-turned-foe, while the world's richest man called for his impeachment. Elon Musk: How a tech nerd became Trump's 'first buddy' Read More » Many observers said the bonhomie between Trump and his former 'first buddy' was bound to implode eventually, given both men's power and outsized egos. Musk also felt his investment in Trump's campaign wasn't paying off, reports suggest. In May, The Wall Street Journal reported that Musk tried to block OpenAI from building one of the world's largest artificial intelligence data centres in Abu Dhabi. Trump and his aides rejected Musk's bid to cancel the deal in favour of his AI company. On Wednesday, Jared Isaacman, a tech billionaire friend of Musk, suggested Trump pulled his nomination to run Nasa because of his ties to Musk. Things could get ugly if the feud refuses to die down, and the president has several institutions that could be weaponised against Musk and his businesses. Trump has not been shy about using state leverage to settle old scores since his return to power. However, Musk has pockets deep enough to make mid-term elections an uphill battle for Trump and his loyalists. If the gloves come off, the world will have a front row seat to an unprecedented battle between the world's most powerful politician and the world's richest man, as it all plays out in real time on social media.
