The governor of the Bank of Israel says that an interest rate cut this year is “possible”.

The head of Israel’s central bank said on Tuesday that he sees one or two possible interest rate cuts in the second half of this year, suggesting confidence that domestic inflation will ease in the coming months.

Inflation, which reached 3.2% in December, “is still above our target of 1% to 3%,” Bank of Israel Governor Amir Yaron told CNBC’s Dan Murphy at the World Economic Forum in Davos.

“We expect (inflation) … to pick up in the first half of the year, partly because of taxes and partly because as we recover, we see demand moving faster than supply constraints,” such as in the labor market, he said.

But while the bank expects spending to rise in the first half of the year, “in the second half we hope that (inflation) will balance out and moderate on its own,” Yaron said. “We see a possible one or two cuts in the second half as inflation should come into target.”

Rating agencies Fitch and Moody’s on Tuesday weighed in on the latest developments in the ceasefire between Israel and Hamas. Moody’s said the deal would reduce risks to Israel’s economy and finances, while Fitch said a prolonged ceasefire would reduce Israel’s credit risks, although its fiscal position would remain weaker than it was before the war.

“A long-term cessation of the war in Gaza would reduce the risks associated with the negative outlook for Israel’s ‘A’ sovereign rating,” Fitch said in a report on Tuesday.

The central bank governor also said he expects Israel’s GDP to record 4% GDP growth in 2025 and 4.5% in 2026, compared to his expectations of 0.6% growth in 2024 — “while we we will see that further escalation will resume. “

“I hope that the ceasefire will be a turning point compared to October 7 (2023), that terrible day,” Yaron said. “All the issues that we’ve seen, people see from both sides … I think if this has a lasting effect, it should pave the way for regional arrangements that, you know, promote rehabilitation and, importantly, sustainable security. provide economic growth that will obviously help the Israeli economy, but not just the Israeli economy — I think it will help the region as a whole.”

The ceasefire deal, brokered by negotiators from Qatar, Egypt and the US, is currently in its first phase, which is expected to last for 42 days and will see Hamas release 33 Israeli prisoners taken during the October 7, 2023 attacks in exchange for at least 1,700 Palestinians are currently imprisoned in Israel.

In this phase, increased humanitarian aid will be deployed to all parts of the Gaza Strip, while hospitals and medical centers will be rebuilt and critical fuel supplies will be delivered to the enclave.

Israel will spend about 100 billion shekels ($28 billion) on military conflicts in 2024, according to its finance ministry. announced on Tuesdaywhich dramatically increased government borrowing and debt. The country’s debt-to-GDP ratio rose from 61.3% in 2023 to 69% by the end of 2024.

In September, Moody’s downgraded Israel’s credit rating by two notches from “A2” to “Baa1”, maintaining the outlook at “negative”. He based his move on the escalation of the conflict between Israel and the Lebanese Hezbollah group. In November, the parties concluded a ceasefire agreement.

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