Bank of Israel holds interest rates at 4.5%, lowers economic growth forecast

The Bank of Israel decides to leave interest rates steady at 4.5 percent, citing “high political uncertainty,” as it cautions about slower economic growth for this year amid the ongoing war with the Hamas terror group and as concerns over the country’s isolation grow.

“The Israeli economy continues to function in an environment of high geopolitical uncertainty in view of the intensification of the fighting in Gaza and the worsening international sentiment toward Israel,” the central bank says in a statement.

The central bank says it now forecasts that the economy will grow by 2.5% in 2025, down from a previous growth estimate in July of 3.3%. But it slightly raises the growth estimate for 2026 from 4.6% to 4.7%, assuming that the “fighting in Gaza continues at varying intensity and ends during the first quarter of 2026.”

The Bank of Israel chose not to lower borrowing costs even as annual inflation in August retreated to 2.9% and moved within the government’s target range of 1% to 3% for the first time in more than a year.

The central bank last lowered interest rates in January 2024, the first cut in almost four years, to support households and businesses as the economy was getting battered by the war with Hamas in Gaza, triggered by the October 7, 2023, onslaught.