JERUSALEM (Reuters) -Israel’s central bank should not rush to cut interest rates in response to the Gaza ceasefire and last month’s inflation dip, given the economy is doing well and improving consumer demand could bring more price pressures, its deputy governor said on Thursday.
Andrew Abir told Reuters that while some indicators support a rate reduction, the central bank will remain cautious.
While labour supply, a key constraint during the war, is expected to increase, the expected boost to consumer demand from the ceasefire could work to offset that effect.
“You could expect sort of a demand-side bonanza given the change in sentiment and the two forces are obviously acting in different ways on inflation,” Abir said.
“It’s very difficult at the moment to know which will have a stronger effect.”
Abir said the central bank’s policy so far has succeeded in bringing inflation back to the target and maintaining market stability.
“We don’t want to ruin that, so we are still going to be cautious going forward. We are not going to rush ahead with (lowering rates) just because there has been a cessation of hostilities for the last week or two.”
(Reporting by Steven ScheerEditing by Tomasz Janowski)
