The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has announced that it has kept the interest rate unchanged at 4.5%. This is the 13th consecutive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January 2024. Analysts had predicted that the rate would be left unchanged.
The Bank of Israel said, "In view of the geopolitical uncertainty, the interest rate path will be determined in accordance with the convergence of inflation to its target range, stability in the financial markets, economic activity, and fiscal policy."
The Bank of Israel has good reasons not to cut the rate. Firstly, annual inflation remains at 3.1%, slightly above the annual target range of 1%-3%. Secondly, the uncertainty around the continuation of the war continues and its potential economic fallout, while the Bank of Israel also prefers to wait and see if and when the US Fed will make its next cut.
Thirdly, the Israeli cabinet yesterday approved a proposal to reopen the 2025 budget and add NIS 31 billion to the annual budget, which will widen the fiscal deficit from 4.9% of GDP to 5.2%.
On the other hand, Israel's risk premium has fallen and is now at its lowest point since the start of the war.
Published by Globes, Israel business news - en.globes.co.il - on August 20, 2025.
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