Israel Central Bank Holds Rates

The Bank of Israel building in Jerusalem. Reuters
The Bank of Israel building in Jerusalem. Reuters
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Israel Central Bank Holds Rates

The Bank of Israel building in Jerusalem. Reuters
The Bank of Israel building in Jerusalem. Reuters

The Bank of Israel kept interest rates unchanged on Wednesday for a sixth straight meeting, but raised the prospect of future rate increases should armed conflict on two fronts push inflation up more than expected.
The central bank - also worried about Israel's investor risk premium which has risen since the Gaza war began on Oct. 7 last year - left 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," the central bank said in a statement.
Policymakers expressed worries over rising inflation stemming largely from supply constraints related to the war with Hamas in Gaza and accelerating fighting with Hezbollah in Lebanon, saying the increase in the pace of inflation is broad, Reuters reported.
Israel's annual inflation rate rose to 3.6% in August from 3.2% in the previous month, moving further above the government's 1%-3% target range after falling as low as 2.5% in February.
Bank of Israel Governor Amir Yaron told a news conference after the decision that the future direction of interest rates was "data dependent.”
Prior to the war, rates - which rose rapidly in 2022 and 2023 - were expected to decline this year. The central bank had reduced its key rate by 25 basis points in January but it has been on hold since due to the war, rising inflation pressures, a widening budget deficit and the higher risk premium.
Some investors have begun to speculate that inflation will continue to rise and possibly push the central bank to raising rates again.
"If inflation rises at a faster rate than we predicted ... we can definitely raise the interest rate," Yaron said, noting the inflation rate is expected to gain in near term.
Yaron said the current level of rates is believed to be restrictive enough to ultimately bring inflation back to within its target.
He added that in the current period Israel's uncertainty is far greater than what the US and European central banks - which have started to loosen policy - are experiencing.
The decision to hold rates steady came despite the bank's research department slashing its forecast for Israeli economic growth this year to 0.5% from a previous estimate of 1.5%.
The economy grew an annualized 0.7% in the second quarter, slowing markedly from a 17.2% pace in the first quarter.
All 14 analysts polled by Reuters had expected no rates move on Wednesday.
The central bank's researchers raised their inflation forecast for the coming year to 3.2% from 3.0%, while the interest rate is projected at its current 4.5% level, rather than 4.25% predicted in July.
The staff raised their expectation for Israel's 2024 budget deficit to 7.2% of gross domestic product from 6.6% due to the extra funds needed to finance the military conflicts. They see a 4.9% of GDP deficit in 2025.
"Approval of a responsible budget for 2025 is an essential component in strengthening the international markets’ trust and maintaining the economy’s robustness," Yaron said.
The budget's passage has been delayed due to political infighting.
The rates decision was initially slated for Monday but was moved to not coincide with the Oct. 7 anniversary of the start of the Gaza war.



Honda and Nissan Reportedly Consider Mutual Production of Vehicles

FILE PHOTO: A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US, April 5, 2023. REUTERS/David 'Dee' Delgado/File Photo/File Photo
FILE PHOTO: A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US, April 5, 2023. REUTERS/David 'Dee' Delgado/File Photo/File Photo
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Honda and Nissan Reportedly Consider Mutual Production of Vehicles

FILE PHOTO: A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US, April 5, 2023. REUTERS/David 'Dee' Delgado/File Photo/File Photo
FILE PHOTO: A Honda logo is seen during the New York International Auto Show, in Manhattan, New York City, US, April 5, 2023. REUTERS/David 'Dee' Delgado/File Photo/File Photo

Honda and Nissan are considering producing vehicles in one another's factories as part of their plan to deepen ties and potentially merge, Japan's Kyodo news agency said on Saturday.
Honda will consider supplying hybrid vehicles to Nissan as part of the plan, the report said, without citing the source of the information.
A merger of Honda, Japan's second-largest car company, and Nissan, its third-largest, would create the world's third-largest auto group by vehicle sales, behind Toyota and Volkswagen, making 7.4 million vehicles a year, Reuters said.
The two automakers forged a strategic partnership in March to cooperate in electric vehicle development, but Nissan has faced financial and strategic troubles in recent months.
As announced, Honda, "Nissan and Mitsubishi Motors are in the process of bringing together our strengths and exploring potential forms of cooperation, but nothing has been decided yet,” a Honda spokesperson said, when asked about the report.
Nissan declined to comment, saying the details of the report were not based on a company announcement. Nissan is the top shareholder in Mitsubishi Motors.
Kyodo said Honda could use Nissan's car factory in Britain, as it now only has factories for engines and motorcycles in Europe.
The move comes amid concerns over how president-elect Donald Trump's policies may shake up manufacturing with his promises of protectionist trade policies, the report said.