Bank of Israel holds interest rate, slashes growth outlook for 2024-25

The Bank of Israel slashes its growth outlook for this year and next as the prolonged war with Hamas and the recent intensified fighting with Hezbollah continue to take a heavy toll on the country’s finances.

The central bank now expects the economy to grow by 0.5 percent in 2024 and 3.8% in 2025, assuming that the war will continue with high intensity into early next year. That forecast was revised from a previous growth projection in July of 1.5% in 2024 and 4.2% in 2025.

The central bank says the trimmed growth forecast for 2025 “reflects more intense fighting in early 2025 (relative to the assessment in the July forecast) and a delay in the gradual recovery of economic activity to the second half of 2025.”

The Treasury, which lowered its growth projection last month, sees the economy expanding by 1.1% in 2024 and 4.4% in 2025.

Alongside the revised growth forecasts, the central bank decides to hold the benchmark interest rate at 4.5% for a sixth consecutive meeting, citing a broad increase in the pace of inflation. The decision is in line with forecasts by most economists.

In January, the central bank lowered borrowing costs for the first time in almost four years by 25 basis points, from 4.75%, to support households and businesses in the early months of the Hamas war, and as the inflation environment was easing.