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BoI Analyst Views Following May Hold

ISRAEL
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  • The Bank of Israel kept the base rate at 4.5% on Monday. The BoI did not provide updated guidance on the rate outlook and continued to highlight that policy "will be determined in accordance with the continued convergence of inflation to its target, continued stability in the financial markets, economic activity and fiscal policy".
  • **Goldman Sachs maintain a relatively dovish view on the medium-term outlook for Israeli inflation and rates. GS expect headline CPI to remain inside the BoI’s +2.0 +/- 1pp target range through the end of the year. Their baseline is that more favourable inflation prints in the coming months and a reduction in Shekel volatility will enable the BoI to restart its cutting cycle in Q3 at the pace of 25bp a quarter, until the key rate reaches neutral (+3.25% on GS estimates) in H2 of 2025.
  • **JPMorgan continue to expect two rate cuts later this year, but conviction around this call is not particularly strong. JPM anticipate core inflation momentum to ease closer to targeted 2% ar in the next few months, which should make the economic argument for cutting somewhat stronger, even as ST inflation expectations could remain elevated due to planned VAT increases. However, whether the geopolitical environment provides space for cuts remains a question mark. Whether the Fed gets any closer to easing is also an uncertainty.
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  • The Bank of Israel kept the base rate at 4.5% on Monday. The BoI did not provide updated guidance on the rate outlook and continued to highlight that policy "will be determined in accordance with the continued convergence of inflation to its target, continued stability in the financial markets, economic activity and fiscal policy".
  • **Goldman Sachs maintain a relatively dovish view on the medium-term outlook for Israeli inflation and rates. GS expect headline CPI to remain inside the BoI’s +2.0 +/- 1pp target range through the end of the year. Their baseline is that more favourable inflation prints in the coming months and a reduction in Shekel volatility will enable the BoI to restart its cutting cycle in Q3 at the pace of 25bp a quarter, until the key rate reaches neutral (+3.25% on GS estimates) in H2 of 2025.
  • **JPMorgan continue to expect two rate cuts later this year, but conviction around this call is not particularly strong. JPM anticipate core inflation momentum to ease closer to targeted 2% ar in the next few months, which should make the economic argument for cutting somewhat stronger, even as ST inflation expectations could remain elevated due to planned VAT increases. However, whether the geopolitical environment provides space for cuts remains a question mark. Whether the Fed gets any closer to easing is also an uncertainty.