Israeli short-term interest rates could continue to decline as long as there are no unexpected changes in the inflation environment, Bank of Israel Governor Amir Yaron said on Monday.
The central bank earlier reduced its benchmark rate (ILINR=ECI), opens new tab by 25 basis points to 3.5%.
“Under our base case scenario, we see the interest rate continuing to fall to at least the 3% range,” Yaron told Reuters after the decision.
Inflation held at a rate of 1.9% in May, well within the government’s 1-3% target.
Yaron said that a strong shekel against the dollar has helped to contain inflation, along with a drop in energy prices and a labour market that has improved with thousands of workers returning from reserve duty.
But despite the success of monetary policy in containing inflation, “we must continue to act responsibly because there is geopolitical uncertainty”, he said.