BoI To Decide Between Cut & Hold

The Bank of Israel will deliver its monetary policy decision at 14:00GMT/16:00IST, with majority of analysts (11/18 in a Bloomberg survey) looking for a 25bp cut, while the rest expect no change to the base rate - currently at 4.50%.

• Bank of America see this week's decision as a very close call between a cut and a hold. Downside surprises in inflation and GDP growth are balanced by inflation expectations (which are rising on the back of higher shipping costs) and cautious BoI guidance. They call for a hold but believe that a cut is also on the table.
• BNY Mellon write that the BoI is expected to cut rates, but there is a case for anchoring inflation expectations, given that the recent extraordinary spending is here to stay. Inflation prints open some room for easing, but data is not comparable to a conventional policy framework.
• Citibank see two way risks between a 25bp cut and a hold, with their economists expecting the former. They note that rate-cut pricing increased after a significant downside surprise in 4Q23 GDP.
  
• Goldman Sachs have pencilled in a 25bp cut as near-term inflation developments and the recent FX performance support continued monetary easing, despite uncertainties surrounding the ongoing conflict and large fiscal deficits. The risks are skewed towards a more cautious outcome and will most likely result in cautious guidance.
  
• HSBC expect another 25bp cut and believe that the BoI can comfortably proceed with its easing cycle next quarter too, raking the base rate to 3.75% by the end of 2Q24. They quote three consecutive below-forecast CPI readings, pointing to the benign structure of the data.
• JP Morgan note that soft January CPI and 4Q23 GDP data suggest continued BoI easing. They expect a 25bp cut this week and a terminal rate of 3.75% by the year-end.