Bank of Israel leaves interest rate unchanged, but warns it could yet rise further

The Bank of Israel decides to leave the benchmark interest rate steady for the second month in a row as inflation shows signs of easing, but warns of a “real possibility” of higher borrowing costs in coming months as the shekel continues to weaken.

The central bank holds interest rates at 4.75 percent, as it did in its last decision on July 10, in line with forecasts by a majority of economists. Steady rate hikes over the past year lifted borrowing costs from a record low of 0.1% in April 2022, as the Bank of Israel sought to bring down soaring inflation.

The aggressive interest rate increases have been rapidly fueling the costs of mortgage and loan holders, who are struggling to meet monthly payments.

“In recent months inflation appears to be slowing,” the central bank says in a statement.

“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 shekel’s depreciation in recent months is contributing to the increase in the inflation rate and the direction of the exchange rate in the coming months will have an impact on the dynamics of inflation,” the statement reads.