Israel's central bank governor said on Tuesday that he expects one or two possible interest rate cuts in the second half of this year, signaling confidence that domestic inflation will ease in the coming months.
Inflation, which reached 3.2% in December, “is still above our target, which is between 1% and 3%,” Bank of Israel Governor Amir Yaron told CNBC's Dan Murphy at the World Economic Forum in Davos.
“We expect (inflation) to rise…in the first half of the year, partly because of taxes, and partly because, as the recovery occurs, we are seeing demand moving faster than supply constraints,” such as those in China. The labor market said.
Yaron said that while the bank expects costs to rise in the first half of the year, “in the second half, we hope that (inflation) will return to balance and moderate on its own.” “We see one or two cuts possible in the second half of the year, when inflation should reach target.”
Ratings agencies Fitch and Moody's on Tuesday assessed the latest developments in the ceasefire between Israel and Hamas. Moody's said the agreement would reduce downside risks to Israel's economy and finances, while Fitch said a permanent ceasefire would mitigate credit risks for Israel, although its financial position would remain weaker than it was before the war.
“A permanent cessation of the war in Gaza would reduce the risks posed by the negative outlook on Israel's 'A' sovereign rating,” Fitch's report on Tuesday said.
The central bank governor also said he expects Israel to record GDP growth of 4% in 2025 and 4.5% in 2026, up from his forecast of 0.6% growth in 2024 — “as long as we don’t see further escalation reinvigorating itself.” “
Hundreds of people demonstrated in Israel demanding the immediate return of hostages to their homes after a ceasefire came into effect, on January 18, 2025, in Tel Aviv, Israel.
Nir Kedar | Anatolia | Getty Images
Yaron said: “I hope that the ceasefire will be a turning point away from October 7, 2023, that terrible day.” “All the problems that we have seen, people on both sides see them… I think that if they are to have a lasting impact, they must pave the way for regional arrangements that facilitate rehabilitation and, more importantly, sustainable security. It will provide economic growth, and it will obviously help the Israeli economy,” he said. But not just the Israeli economy – I think it will help the region as a whole.”
The ceasefire agreement, brokered by negotiators from Qatar, Egypt and the United States, is currently in its first phase, which is scheduled to last 42 days and will see Hamas release 33 Israeli prisoners captured during the October 7, 2023 attacks, in exchange for at least 1,700 Palestinians. Currently imprisoned in Israel.
During this phase, enhanced humanitarian assistance will be deployed throughout the Gaza Strip, while hospitals and health centers will be rehabilitated, and vital fuel supplies will reach the Strip.
Israel spent about 100 billion shekels ($28 billion) on military conflicts in 2024, according to the Finance Ministry. Announced Tuesdaywhich led to a sharp increase in government borrowing and debt. The country's debt-to-GDP ratio rose from 61.3% in 2023 to 69% by the end of 2024.
In September, Moody's lowered Israel's credit rating by two notches from “A2” to “Baa1”, keeping its outlook at “negative” at the time. It based its move on the escalating conflict between Israel and the Lebanese Hezbollah group. The warring parties reached a ceasefire agreement in November.
