Central Bank leaves rates unchanged in September

Latest bank decision: At its meeting on 29 September, the Central Bank decided to leave its policy rate unchanged at 4.50%, where it has been since the start of 2024.

Stubborn inflation drives hold: The Central Bank likely judged it was premature to cut rates given that the labor market is tight, and that both headline and core inflation are close to or above the top of the Bank’s 1.0–3.0% target range. On the flipside, hiking rates was not warranted either given that headline inflation should move back in range in the coming months.

Monetary easing still the baseline scenario: The Central Bank provided no explicit forward guidance on the future direction of interest rates. Most of our panelists expect rate cuts before the end of 2025, of either 25 or 50 basis points. However, a few panelists see rates on hold. The balance of probabilities appears to be skewed towards fewer or no rate cuts this year given stubborn price pressures.

Panelist insight: On the outlook, Goldman Sachs’ analysts said: “The BoI did not provide any clear guidance for the future path of its policy rate in the accompanying press release, nor did BoI Governor Amir Yaron in his speech after the MPC. However, the BoI staff is projecting a delay to the cutting cycle – at the July MPC, it expected a cumulative 75bp worth of cuts by Q2-2026, while it is now expecting the same magnitude of cuts by Q3-2026. That said, both the BoI staff forecast and Governor Yaron's comments emphasise large two-sided uncertainties stemming from developments in the Gaza war.”

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