Bank of Israel holds interest rates steady, sees slower growth with resumption of war

The Bank of Israel holds interest rates steady as it sees slower growth for this year and next, as it expects the resumption of war with the Hamas terror group to continue to take a toll on the country’s finances and the economy and newly imposed US tariffs to have an impact on Israeli exports.

The central bank now expects the economy to grow by 3.5 percent in 2025, and 4% in 2026. That forecast was revised from a previous growth projection in January of 4% in 2025 and 4.5% in 2026, when the central bank assumed that intense fighting with Hamas would abide in the first three months of the year.

The trimmed growth forecasts assume that the “resumption of fighting in Gaza will not extend beyond the second quarter of 2025, and that during this period, there will be no serious restrictions on activity on the home front [in contrast with the situation at the beginning of the war],” the central bank says.

“The new tariff policy announced by the US government is expected to moderate the volume of world trade and of Israeli exports,” the central bank adds.

Alongside the revised growth forecasts, the central bank decides to hold the benchmark interest rate at 4.5% as “economic activity continues to recover moderately in view of geopolitical developments.”