Prospects for US-Iran deal heat up Israel's central bank is expected to resume interest rate cuts

On May 25, Israel's central bank was expected to cut interest rates as the United States and Iran appeared to be moving closer to reaching a deal to end the war. According to a survey of 14 economists, eight expect the Bank of Israel to cut its benchmark interest rate by 25 basis points to 3.75 percent on Monday. Rafael Gozlan, chief economist at IBI Investments, said: "From the central bank's perspective, inflation is stable near the median target range (1.9%), coupled with the sharp appreciation of the shekel, support a small cut in interest rates. The next decision will depend on geopolitical developments. If the situation does not escalate significantly, we expect to cut interest rates; if the situation worsens, we may keep interest rates unchanged." The Israeli shekel closed at 2.9 shekels to the dollar on Friday, maintaining its strongest level in more than three decades, further consolidating market expectations for moderate future inflation. According to a survey released by the Bank of Israel on May 19, Israel's average inflation forecast for the next 12 months has dropped from the previous 2.3% to 1.8%. Since the Monetary Policy Committee's last interest rate decision at the end of March, the shekel has risen 8% and has appreciated by nearly 24% over the past year. Other factors supporting the interest rate cut include the slow recovery of the Israeli economy from the war with Iran, and economic growth is not expected to accelerate significantly even if an agreement is finally reached.