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Bank of Israel Cuts Key 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 rate cut, as policymakers address the economic drag from a persistently strong shekel. The decision, which brings borrowing costs to their lowest level since late 2022, was in line with the median forecast of analysts in a Bloomberg survey.
Shekel Strength Drives Easing
The central bank's move comes amid mounting pressure to counter the shekel's appreciation, which has remained near multi-decade highs. The strong currency has negatively impacted Israeli exporters, particularly technology companies, prompting public calls for rate reductions from officials including Finance Minister Bezalel Smotrich.
Policymakers proceeded with the rate cut even as they weighed projections for accelerating economic growth. The decision indicates that concerns over the currency's strength and moderate inflation expectations are currently the primary drivers of monetary policy.
AdMarket Impact and Outlook
The shekel has already reacted to the central bank's recent easing cycle. The currency weakened by more than 5% against the U.S. dollar last month after the resumption of rate cuts, making it one of the worst-performing global currencies tracked by Bloomberg during that period.
In its statement, the Bank of Israel maintained its forward guidance, noting that future rate decisions "will be determined based on inflation dynamics, economic performance, geopolitical uncertainty, and fiscal developments." The bank's research department projects that inflation will reach 1.8% by the end of the second quarter of 2027, with the policy rate forecast to be at 3% by that time.