Bank of Israel holds off on interest rate hike for first time in over a year

The Bank of Israel decides to leave its benchmark interest rate unchanged at 4.75 percent for the first time in more than a year, after annual inflation in May rose less than forecast and the US Federal Reserve held off on a hike last month.

“Economic activity in Israel is at a high level, and is accompanied by a tight labor market, although there is some moderation in a number of indicators,” the central bank says in a statement today. “With that, in recent months inflation appears to be slowing.”

“Therefore, the Monetary Committee decided to leave the interest rate unchanged, but sees a real possibility of having to raise the interest rate in future decisions, if the inflation environment does not continue to moderate as expected,” the statement reads.

The rate hike pause comes after the central bank steadily raised interest rates from a record low of 0.1% in April 2022 for 10 consecutive times to 4.75% at the end of May in a bid to rein in inflation. The aggressive interest rate increases rapidly raised the monthly costs of mortgage and loan holders.

Despite the monetary tightening steps, inflation is still far above the government’s target range of 1% to 3% in recent months.

In May the consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, increased by 0.2%, below analysts’ expectations of between 0.5% and 0.6%. The May results show annual inflation over the past 12 months at 4.6%, after hovering around 5% for more than six months.