Monetary Stability Amid Conflict: Bank of Israel Holds Steady on Rates

The Bank of Israel has maintained its short-term interest rates at 4.50% for the tenth meeting in a row amidst ongoing conflict with Hamas. Despite economic challenges and rising prices, the bank focuses on market stabilization and economic support, forecasting moderate growth and inflation in upcoming years.

The Bank of Israel opted to keep short-term interest rates steady at 4.50% during its meeting on Monday, marking the tenth consecutive occasion it has done so. The decision comes as the conflict between Israel and Hamas in Gaza recommences following a brief cessation in hostilities.

In a statement regarding its decision, the bank indicated that as the war persists, its Monetary Committee is prioritizing market stabilization and reducing uncertainty, while also seeking to maintain price stability and support economic activity. This follows a January 2024 reduction of the key rate by 25 basis points, driven by easing inflation and a slowdown in economic growth due to the conflict.

All 14 analysts surveyed by Reuters correctly anticipated no change in the rate. The central bank further noted that a new U.S. tariff policy is expected to impact the volume of world trade and Israeli exports. Despite recent hikes in taxes, electricity, and water costs, the annual inflation rate eased to 3.4% in February, though it remains above the government's target range of 1-3%. Moving forward, economic forecasts predict moderate growth and inflation rates in the coming years.

(With inputs from agencies.)