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Bank of Israel Cuts Key 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%, marking its second consecutive rate cut. The move, which was in line with the median forecast in a Bloomberg survey, brings borrowing costs to their lowest level since late 2022.
Shekel Strength Drives Policy
The central bank's decision was primarily driven by concerns over the persistent strength of the Israeli shekel and its negative impact on the nation's economy. Policymakers have faced increasing pressure to address the currency's appreciation, which hurts the competitiveness of Israeli exporters, particularly in the crucial technology sector.
Finance Minister Bezalel Smotrich has also made multiple public calls for the Bank of Israel to reduce rates to ease pressure on businesses. Despite weakening more than 5% against the U.S. dollar last month following the previous rate cut, the shekel remains near its strongest level in decades, according to Investing.com data.
AdEconomic Outlook and Forward Guidance
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 central bank’s research department projects that inflation will reach 1.8% by the end of the second quarter of 2027. Under that scenario, the department forecasts that interest rates would be at 3%, suggesting the potential for further easing if economic conditions align with its outlook.