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%, as expected. This is the ninth consecutive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January 2024.
The decision was expected as the annual rate of inflation in Israel remains relatively high at 3.8%, well above the top of the Bank of Israel's annual target range for inflation of 3%, leaving no room for relaxation in monetary policy. However, the Bank of Israel said that inflation is expected to enter the target range in the second half of 2025.
In its decision, the Bank of Israel said, "In view of the continuing war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy."
The Bank of Israel added, "Economic activity continues to recover moderately in view of geopolitical developments. In the fourth quarter of 2024, the growth rate moderated, reflecting a marked increase in most domestic uses, which, combined with supply constraints, was largely fulfilled through increased imports
"At the same time, previous GDP data were revised, such that GDP grew by 1% in 2024."
The Bank of Israel further noted, "Since the previous interest rate decision, the shekel has appreciated by 1.9% against the US dollar. The shekel also appreciated by 1.3% against the euro, and 1% in terms of the nominal effective exchange rate.
"Israel’s risk premium, as measured by the 5-year CDS price and by the spreads on dollar-denominated government bonds, continued to decline, but remained higher than in the prewar period."
On housing prices the Bank of Israel said, "Home prices rose by 7.3 percent in 2024. Activity in the construction industry continues to be influenced by labor shortages, but the difference between the number of people currently employed in the construction industry and their number prior to the war has narrowed."
Analysts expect the Bank of Israel to begin cutting the interest rate in the second half of 2025.
Published by Globes, Israel business news - en.globes.co.il - on February 24, 2025.
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