By Steven Scheer
JERUSALEM (Reuters) -The Bank of Israel left short-term interest rates unchanged on Monday, citing Israel's ongoing push deeper into Gaza along with persisting inflation.
The central bank left its benchmark rate at 4.50% for the 14th meeting in a row.
"In view of the intensification of the fighting in Gaza and a deterioration in international sentiment toward Israel, uncertainty in the geopolitical environment is high," the bank said.
Its last move was to reduce the rate by 25 basis
points in January 2024 after inflation eased and economic growth slowed in the early days of the Gaza war. It has kept policy steady since then and said it is in no rush to ease again while inflation remains at the upper bound of its target.
Nine of 12 analysts polled by Reuters had expected no rate move on Monday. Three predicted a 25 basis-point rate cut on the heels of declining price pressures.
Israel's annual inflation rate eased to 2.9% in August from 3.1% in July, moving back to within the government's 1-3% annual target. At the same time, the economy contracted an annualised 4% in the second quarter.
The Bank of Israel's economists expect inflation to still be at 3% by the end of the year before slipping to 2.2% in 2026. It thinks the economy is poised to grow 2.5% this year, down from its prior estimate in July of 3.3%.
As a result, the bank's staff expect the interest rate to decline to 3.75% - or just two quarter-point cuts - in the next year.
(Reporting by Steven Scheer and Pesha Magid; Editing by Toby Chopra and Hugh Lawson)
