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Bank of Israel Cuts Benchmark Interest Rate to 3.50%
Summary
The Bank of Israel has lowered its key interest rate for the second consecutive time, reducing it to 3.50% in response to a persistently strong shekel and moderate inflation. The move brings borrowing costs to their lowest point since late 2022.
The Bank of Israel on Monday reduced its benchmark interest rate by a quarter-point, from 3.75% to 3.50%. This is the second consecutive rate cut implemented by the central bank and aligns with the median forecast of economists surveyed by Bloomberg.
The decision was driven by concerns over the strength of the shekel and moderate inflation expectations, which reportedly outweighed projections for accelerating economic growth. Policymakers have faced increasing pressure from exporters, particularly in the technology sector, who are concerned about the impact of the strong currency on their operations. Finance Minister Bezalel Smotrich has also made public calls for rate reductions.
Despite weakening more than 5% against the U.S. dollar last month following the previous rate cut, the shekel remains near its strongest level in decades. The central bank's actions are seen as an effort to temper the currency's appreciation.
AdIn its official statement, the Bank of Israel maintained its forward guidance, indicating that future rate decisions "will be determined based on inflation dynamics, economic performance, geopolitical uncertainty, and fiscal developments." The bank's research department projects inflation will reach 1.8% by the second quarter of 2027, with interest rates potentially at 3% by then.