Israel’s central bank left interest rates unchanged, opting against a second straight cut because of concern that inflation might accelerate again as the war against Hamas continues.
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Bloomberg News
Galit Altstein
Published Feb 26, 2024 • Last updated 48 minutes ago • 3 minute read
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(Bloomberg) — Israel’s central bank left interest rates unchanged, opting against a second straight cut because of concern that inflation might accelerate again as the war against Hamas continues.
The monetary committee left the key rate at 4.5%, a surprise for most economists in a Bloomberg survey who had predicted a reduction of a quarter percentage point. The shekel initially pared losses after the announcement before trading 0.3% weaker against the dollar as of 5:30 p.m. local time.
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Speaking after the decision in Jerusalem, Governor Amir Yaron made clear the central bank maintains an easing bias, saying it can continue with rate cuts if inflation stabilizes.
“There is still uncertainty related to the impacts of the war on inflation processes,” he said. “It is important to continue to conduct responsible fiscal policy, and to broadcast this to the markets, which today are following the activity in Israel more than ever.”
A pause reflects the competing priorities pulling at policymakers as the war against Hamas approaches its sixth month. Though mindful of risks to the economy after a near-record contraction last quarter, the central bank has also warned that the government’s heavy spending in response to the conflict could be an obstacle to further monetary easing, in addition to concern over shekel volatility, geopolitics and credit rating downgrades.
Judging by the slowdown in price growth in recent months, ample room is available for the Bank of Israel to provide more stimulus. The Bank of Israel’s research department projects the interest rate at 3.75%-4% in the fourth quarter of 2024, an outlook that Yaron has said could imply as many as four cuts this year.
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The central bank on Monday repeated its guidance from January, saying it’s “focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity,” according to a statement accompanying the decision.
“There is a great amount of uncertainty with regard to the expected severity and duration of the war,” it said. “The Committee’s assessment is that there are still a number of risks of a potential acceleration in inflation.”
In Sync
By skipping a rate cut, Israel also aligns more closely with policies of global central banks.
US Federal Reserve officials have recently made clear they are in no rush to reduce rates. Several policymakers at the European Central Bank are stressing that monetary easing can’t begin until more data arrives in the coming months.
Relative calm has so far prevailed in Israeli markets, despite a downgrade earlier this month by Moody’s Investors Service, Israel’s first-ever sovereign rating cut.
Since that decision, the shekel has been the second-best performer among a basket of 31 major currencies tracked by Bloomberg, a rally helped by gains in global tech stocks. It’s trading at a level stronger than before the war, up more than 12% after reaching an 11-year low in late October.
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Although Israel’s rate differential with the US shrank with a cut to start the year, its official borrowing costs are near 2% when adjusted for inflation, comparable to Canada’s and a bigger buffer than in developed economies from the UK to the eurozone.
Annual Israeli inflation was slowing or unchanged in all but one of the past 12 months, entering the government’s 1%-3% target range for the first time in over two years.
But a ramp-up in government spending is raising the risk of sticky inflation, especially if worker shortages endure, as higher shipping costs add to pressures.
The future course of the conflict presents the biggest uncertainty of all, highlighted by the threat that the fighting could spread along Israel’s northern border where its military has been exchanging fire with Iran-backed Hezbollah.
An economic slowdown at the end of last year also contrasts with signs of a quick rebound so far in 2024, especially in private consumption and a labor market that’s seen unemployment fall sharply since a spike in October. The Israeli Purchasing Managers’ Index in January shifted back into expansion from contraction, according to Bank Hapoalim.
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Rate cuts are set to resume with a move to 4.25% in April, when an updated economic outlook by the central bank’s researchers will likely show “relatively moderate growth in 2024 and a considerable acceleration” the following year, according to Gil Bufman, Bank Leumi’s chief economist.
“The decision not to change the interest rate at the present time, despite the clear signs of inflation converging into the price stability target range, was mainly based on the high degree of uncertainty regarding the scope and duration of the expected fighting and its economic effects,” he said.
—With assistance from Joel Rinneby.
(Updates with economist comment in final two paragraphs.)
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
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