06:47 AM EDT, 08/23/2024 (MT Newswires) -- The Bank of Israel (BoI) is likely to keep its policy rate on hold at

4.50% next Wednesday, despite disappointing economic growth in Q2, said UBS.

Inflation moved above the 3% target again -- July was 3.2% y/y -- and risks from the war to the budget and shekel (ILS) remain dominant, wrote the bank in a note. The region is still at risk of an escalation in the ongoing conflict and the shekel remains driven by

the security backdrop.

The currency's risk premium is high, and while a ceasefire agreement for Gaza could lead to a partial unwind, this has been elusive so far, stated UBS. Israeli and Hamas leadership have failed to reach common ground, even in the face of diplomatic efforts and renewed pressure in recent weeks.

The main downside risk for the shekel remains a multi-front war with Hezbollah, Iran, and its proxies, added the bank.