Bank of Israel Surprises with Interest Rate Cut Amid Easing Inflation

The Bank of Israel unexpectedly reduced its short-term interest rate to 4.00%, citing moderated inflation. This follows a previous cut in November. Despite nine out of ten economists predicting stable rates, the bank made the cut, acknowledging easing inflation pressures and changes in the labor market.

The Bank of Israel took a surprising step on Monday by reducing its short-term interest rate by 25 basis points, following a similar reduction in November—the first in almost two years.

The central bank lowered its benchmark rate to 4.00% from 4.25%, attributing this decision to a moderated inflation environment. Forecasters predict a spike in inflation by December, eventually stabilizing to the policy target midpoint.

November's annual inflation rate of 2.4% is within the government's 1-3% target range. Though supply constraints previously fostered inflation, recent data show an easing of these restrictions alongside the shekel's strong performance against the dollar. Nine out of ten economists anticipated steady rates this month.

(With inputs from agencies.)