With the prospects of a US-Iran agreement heating up, the Bank of Israel is expected to resume interest rate cuts.

According to Golden Ten Data on May 25, as the United States and Iran appear to be moving closer to reaching an agreement to end the war, the Bank of Israel is expected to cut interest rates. In a survey of 14 economists, 8 predict that the Bank of Israel will lower its benchmark interest rate by 25 basis points to 3.75% on Monday. Rafael Gozlan, Chief Economist at IBI Investment House, said: “From the central bank’s perspective, with inflation stabilizing near the midpoint of the target range (1.9%) and the shekel appreciating significantly, there is support for a modest rate cut. Future decisions will depend on geopolitical developments. If there is no major escalation, we expect a rate cut; if the situation deteriorates, the rate may remain unchanged.” The Israeli shekel closed at 2.9 shekels per US dollar last Friday, maintaining its strongest level in over thirty years, further reinforcing market expectations for moderate inflation in the future. According to a survey released by the Bank of Israel on May 19, average inflation expectations in Israel for the next 12 months have dropped from 2.3% to 1.8%. Since the last monetary policy committee decision at the end of March, the shekel has risen by 8% and has appreciated nearly 24% over the past year. Other factors supporting a rate cut include the slow recovery of Israel's economy from the war with Iran. Even if an agreement is ultimately reached, economic growth is not expected to accelerate significantly.