Bank of Israel cuts interest rates by 25 bps amidst war, easing inflation
Bank of Israel cuts interest rates by 25 bps amidst war, easing inflation
The Bank of Israel lowered short-term borrowing rates for the first time in nearly four years. It had raised rates 10 straight times in an aggressive tightening cycle that took the rate from 0.1% last April before pausing in July and again in August, October and November
The Bank of Israel lowered short-term borrowing rates for the first time in nearly four years on Monday following data showing a weakening economy and easing inflation as a result of Israel's war against Palestinian terrorist group Hamas.
Ahead of the decision, analysts were split, with seven expecting no move and seven projecting a 25 basis point reduction, the first reduction since April 2020.
The central bank lowered its benchmark rate by a quarter-point from 4.75% to 4.50%.
It had raised rates 10 straight times in an aggressive tightening cycle that had taken the rate from 0.1% last April before pausing in July and again in August, October and November.
The inflation rate eased to 3.3% in November from 3.7% in October but remained above an annual target range of 1%-3%. The economy is expected to contract in the fourth quarter and end 2023 with growth of 2%.
Governor of the Bank of Israel, Professor Amir Yaron, received an additional five-year term in November. Yaron's term, originally set to end on December 24 after five years, faced uncertainty before the war in Gaza that started on October 7. Prime Minister Benjamin Netanyahu and Finance minister Bezalel Smotrich had agreed to decide on the extension by mid-October, but the war that erupted following the horrific massacre in southern cities in Israel led to the establishment of a new emergency government coalition with parties from the opposition. While the new coalition agreement did not include many provisions, it did stipulate that appointments to senior state official positions would not be made during the emergency government.
