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Bank of Israel Cuts Key Interest Rate to 3.50% to Counter Strong Shekel
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 was widely anticipated by economists, brings borrowing costs to their lowest level since late 2022 as policymakers address the economic impact of a strong national currency.
Pressure from a Strong Currency
The central bank's decision comes amid increasing pressure to weaken the Israeli shekel, which remains near multi-decade highs despite a recent dip. A persistently strong currency has raised concerns for the country's exporters, particularly in the vital technology sector, by making their goods and services more expensive abroad.
The monetary policy committee is also responding to calls for looser policy, including public statements from Finance Minister Bezalel Smotrich urging rate reductions. The shekel weakened by more than 5% against the U.S. dollar last month following the previous rate cut, according to Bloomberg data.
AdPolicy Outlook and Projections
The Bank of Israel maintained its existing forward guidance, stating that the path of future rate decisions "will be determined based on inflation dynamics, economic performance, geopolitical uncertainty, and fiscal developments." The decision to cut rates was supported by moderate inflation expectations, even as the bank weighs projections for accelerating economic growth.
According to the central bank's research department, the inflation rate is projected to reach 1.8% by the end of the second quarter of 2027. The department's forecast sees the benchmark interest rate declining further to 3% over the same period.