07:10 AM EDT, 07/30/2024 (MT Newswires) -- The Bank of Israel (BoI) kept its policy rate on hold at 4.50% recently, noted UBS.

Inflation -- in June it was 2.9% y/y-- and inflation expectations are close to the upper limits of the BoI's target range. The bank thinks the BoI will remain on hold in the coming months, with the war against Hamas, fiscal policy and supply constraints presenting inflationary risks.

The continued uncertainty and drag of the war on the Israeli economy was underlined by the central bank's Research

Department's new assumption of the war subsiding only in early 2025, accompanied by a cumulative decrease of the expected real gross domestic product (GDP) growth for this year (1.5% y/y) and the next (4.2%) by 1.3 percentage points.

The war also may weigh further on fiscal balances, more than the already assumed 6.6% deficit for this year, pointed out the bank.

News on ceasefire negotiations for Gaza helped the shekel (ILS)

strengthen temporarily, but a rocket strike that killed 12 youngsters and wounded more than 40 people in the Israeli-occupied Golan Heights on Saturday raised the risk of the situation at Israel's northern border escalating further, added UBS.

An all-out conflict between Israel and Hezbollah would put Israel at risk from Hezbollah's large arsenal and increase the likelihood of renewed direct blows between Israel and Iran, which would weigh heavily on the shekel, according to the bank.