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Bank of Israel Cuts Interest Rate to 3.50% to Counter Strong Shekel
Summary
The Bank of Israel lowered its benchmark interest rate for the second consecutive time, cutting it to 3.50% as policymakers seek to address the impact of a strong shekel on the nation's exporters.
The Bank of Israel on Monday lowered its benchmark interest rate by 25 basis points to 3.50%, its second consecutive rate cut. The move, which brings borrowing costs to their lowest level since late 2022, was driven by concerns over a strong shekel and moderate inflation expectations, according to the central bank.
Rationale for the Cut
The monetary policy decision was in line with the median forecast of analysts in a Bloomberg survey. Policymakers are balancing projections for accelerating economic growth against the negative impact of currency appreciation on the country's export-oriented sectors.
Pressure has been mounting on the central bank to ease policy. Israeli technology companies and other exporters have voiced increasing concern about the persistently strong shekel, which erodes the value of their overseas earnings. Finance Minister Bezalel Smotrich has also publicly called for lower interest rates.
AdCurrency and Market Context
The shekel's strength has been a primary focus for the central bank. Despite weakening more than 5% against the U.S. dollar last month after the previous rate cut, the currency remains near its strongest level in decades. This has kept the issue at the forefront for policymakers aiming to support the export economy.
In its statement, the Bank of Israel maintained its forward guidance, indicating that the path of 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 end of the second quarter of 2027, with interest rates forecast at 3% by that time.