Amid war, Bank of Israel leaves interest rates unchanged

The Bank of Israel opts to take a breather and leave borrowing costs unchanged after last month’s bold rate cut amid the ongoing war with the Hamas terror group that has been raging for over four months.

“There is a great amount of uncertainty with regard to the expected severity and duration of the war,” the central bank says in a statement. “The war is having significant economic consequences, both on real economic activity and on the financial markets, and the country’s risk premium remains high.”

“Indicators of economic activity and the state of employment point to a gradual recovery following the sharp decline that took place with the outbreak of the war, but there is variance between industries,” the statement reads.

The central bank decides to hold interest rates at 4.50 percent. Ahead of the decision, economists were not split on whether interest rates would come down further but rather over the timing of the move, with some expecting another reduction at the next meeting in April amid uncertainty over the extent and the risk of an escalation of the war on the northern front with the Hezbollah.

The Bank of Israel on January1 cut the base lending rate for the first time in almost four years by 25 basis points to 4.50% to support households and businesses, with the economy getting battered due to the prolonged war with Hamas and the inflation environment easing.