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Bank of Israel Cuts Interest Rate to 3.50% to Counter Strong Shekel
The Bank of Israel lowered its benchmark interest rate by 25 basis points to 3.50% on Monday, its second consecutive cut, as policymakers act to curb the strength of the shekel amid moderate inflation. The move brings borrowing costs in the country to their lowest point since late 2022.
Shekel Strength Drives Policy Decision
The central bank's decision was primarily driven by concerns over the persistently strong Israeli shekel. The currency's appreciation has created headwinds for the nation's exporters, particularly technology companies, which have increasingly voiced concerns about the impact on their operations and global competitiveness.
The rate cut also follows multiple public calls for monetary easing from Finance Minister Bezalel Smotrich. According to a Bloomberg survey, Monday's decision was in line with the median forecast of economists.
AdMarket Impact and Outlook
Despite weakening more than 5% against the U.S. dollar last month after the previous rate reduction, the shekel remains near its strongest valuation in decades. This ongoing strength has kept pressure on the central bank to continue its easing cycle.
In its statement, the Bank of Israel maintained its forward guidance, noting that future decisions "will be determined based on inflation dynamics, economic performance, geopolitical uncertainty, and fiscal developments." The bank's own research department projects that inflation could reach 1.8% by the end of the second quarter of 2027, with the policy rate potentially falling to 3.0%, signaling that further cuts may be forthcoming.