Prospects for US-Iran Agreement Improve, Bank of Israel Expected to Resume Rate Cuts

**May 25** — As the U.S. inches closer to a potential peace deal with Iran, the Bank of Israel is widely expected to lower interest rates. A new survey of 14 economists shows 8 forecast the central bank will trim its benchmark rate by 25 basis points to 3.75% this Monday. Rafael Gozlan, chief economist at IBI Investment Company, told reporters: “For the central bank, inflation holding steady near the midpoint of its 1.9% target range plus the shekel’s sharp appreciation all point to a small rate cut. The central bank’s next move will hinge on geopolitical events. No major escalation means a cut is likely; a worsening situation could keep rates on hold.” The shekel closed last Friday at 2.9 to the U.S. dollar — its strongest level in over three decades — fueling market expectations of mild inflation ahead. A May 19 survey from the Bank of Israel showed Israel’s average 12-month inflation forecast fell to 1.8% from 2.3% earlier. The shekel has jumped 8% since the Monetary Policy Committee’s last rate decision in late March, and is up nearly 24% over the past year. Additional factors backing a rate cut include Israel’s slow economic recovery from the war with Iran: Even if a peace deal is reached, growth isn’t projected to pick up meaningfully.