Story
Bank of Israel Cuts Interest Rate to 3.50% to Counter Strong Shekel
Summary
The central bank lowered its benchmark rate for the second consecutive time, citing the shekel's persistent strength and moderate inflation as key factors.
The Bank of Israel lowered its key interest rate by 25 basis points to 3.50% on Monday, marking its second consecutive rate cut as policymakers seek to address the strength of the national currency.
The decision, which was widely anticipated and matched the median forecast in a Bloomberg survey, brings borrowing costs to their lowest level since late 2022. The central bank is balancing a strong shekel and moderate inflation against projections for accelerating economic growth.
Pressure from Exporters Mounts
The move comes amid increasing pressure on the central bank to ease monetary policy. A persistently strong shekel has raised concerns among Israeli exporters, particularly in the vital technology sector, who find their international competitiveness eroded.
Finance Minister Bezalel Smotrich has also made several public calls for the Bank of Israel to reduce rates. The central bank's action indicates that concerns over the currency's appreciation are a primary focus for policymakers.
AdMarket Impact and Forward Guidance
Despite the shekel weakening by more than 5% against the U.S. dollar last month after the central bank resumed its cutting cycle, the currency remains near its strongest levels in decades. The rate cut is expected to exert further downward pressure on the shekel.
Looking ahead, the Bank of Israel maintained its existing forward guidance. The bank stated that future rate decisions "will be determined based on inflation dynamics, economic performance, geopolitical uncertainty, and fiscal developments." The central bank’s research department forecasts inflation will reach 1.8% by the end of the second quarter of 2027, with the interest rate projected to be at 3% by that time.