The Bank of Israel reduced its benchmark interest rate by a quarter point to 3.5%, the second cut in a week, signaling cautious confidence as inflation steadies. However, the central bank warned that the economic recovery hinges on no renewed fighting with Iran, lower tensions in Lebanon, and keeping defense spending from blowing open the deficit.
The Bank of Israel announced a quarter-point interest rate cut to 3.5% on Monday evening, the second reduction in a week — following a cut to 3.75% earlier on Monday — as the central bank's monetary policy committee signaled cautious confidence in the economy's recovery from the Iran war shock. The rate now stands at 3.5%, down from a peak of 4.75% earlier this year.
In its accompanying forecast, the Bank predicted stronger growth ahead but attached a major condition: the recovery depends on no renewed fighting with Iran, lower regional tensions, particularly on the Lebanon front, and keeping defense spending from widening the fiscal deficit. The warning reflects the central bank's assessment that the geopolitical risk premium remains high.
As The Zioneer reported earlier Monday, the cut drew mixed reactions from business and industry leaders: the chairman of the Business Sector Presidency welcomed the relief for credit costs, while the Lahav independent business organization and the Builders Association each called for deeper cuts. Finance Minister Bezalel Smotrich also criticized the reduction as "minimal." The central bank's formal guidance — embedded in its latest forecast — now explicitly ties monetary policy to the security situation, a rare degree of conditionality for the normally cautious institution.
2 developments
- DevelopingAnalysts assess Bank of Israel will cut interest rate by quarter point tomorrow
- DevelopingBuilders head calls on Bank of Israel to cut rate to 2.5%, slash rental taxes
- DevelopingLahav chair: Bank of Israel rate cut insufficient, half-point reduction was needed
- StrongDubi Amitai: Rate cut 'enables business sector to invest, hire, return to growth'
Source and signal
- Internal intake