09:18 AM EDT, 08/28/2024 (MT Newswires) -- The Bank of Israel (BoI) is likely to keep its policy rate on hold at 4.50% in the coming months, as inflation has moved above the

3% target again -- in July it was 3.2% y/y-- and risks from the war to the budget and shekel (ILS) remain "significant," said UBS.

Economic growth in Q2 surprised strongly to the downside (1.2% q/q annualized, compared with Bloomberg median expectation of 5.9%), wrote the bank in a note to clients. Private consumption continued to expand, as did public consumption, mostly on war expenses.

War risks may necessitate a higher budget deficit than assumed for this year and make planning for next year's budget difficult as well, stated UBS. Increasing market concerns over the financing of the Israeli state may also weigh on the shekel.

The bank's end-of-quarter USDILS forecasts are 3.70, 3.60, 3.55 and

3.55 through Q3 2025. The key downside risk for the shekel is a

multifront war with Hezbollah, Iran and its proxies.