Bank of Israel holds interest rates at 4.5% amid ongoing war, weaker shekel

The Bank of Israel leaves interest rates steady amid the ongoing war with the Hamas terror group in Gaza, growing geopolitical uncertainty and a weaker shekel.

The central bank decides to hold interest rates for a second consecutive time at 4.5 percent after it cut the base lending rate on January 1, for the first time in almost four years, by 25 basis points to support households and businesses as the economy was getting battered, due to the Hamas war, and as the inflation environment was easing.

“In view of the war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity,” the central bank says in a statement. “Geopolitical uncertainty has increased and is reflected in the economy’s relatively high-risk premium.”

Ahead of the decision, economists were split on whether interest rates would come down further or remain steady as the shekel weakened amid heightened tensions and threats by Iran to respond to the alleged assassination by Israel of the top Islamic Revolutionary Guard Corps officer in Syria.

Since the previous interest rate decision, the shekel weakened by about 2.7% against the dollar and by about 2.6% against the euro, the central bank says.