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Bank of Israel Lowers Key Interest Rate to 3.50%
Summary
The Bank of Israel has reduced its benchmark interest rate for the second consecutive time, bringing it down to 3.50% in a move to address the persistent strength of the national currency, the shekel. The decision, which was widely anticipated, brings borrowing costs to their lowest level since late 2022.
The Bank of Israel on Monday announced a reduction in its benchmark interest rate, lowering it by a quarter of a percentage point from 3.75% to 3.50%. This marks the second consecutive rate cut by the central bank and aligns with the median forecast of economists. The new rate represents the lowest borrowing cost in the country since late 2022.
The decision was reportedly driven by concerns over the shekel's strength and moderate inflation expectations, which outweighed projections for accelerating economic growth. Policymakers have faced increasing pressure to curb the currency's appreciation, with exporters, particularly in the technology sector, voicing concerns about its impact on their operations. Finance Minister Bezalel Smotrich had also made public calls for a rate reduction.
Despite weakening by over 5% against the U.S. dollar last month following the previous rate cut, the shekel remains near its strongest valuation in decades. The currency's persistent strength has been a central point of concern for Israeli businesses that rely on international trade.
AdLooking ahead, the central bank maintained its forward guidance, stating in a release 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 interest rates potentially at 3% by that time.