Bank of Israel shaves growth forecast, keeps interest rate steady as war bites

Sharon Wrobel is a tech reporter for The Times of Israel.

The Bank of Israel decides to leave interest rates steady, and cuts its growth outlook for 2023 as the shekel continues to weaken and the ongoing war with the Hamas terror group poses an economic burden on households and businesses.

The central bank holds the benchmark rate at 4.75 percent, in line with forecasts by the majority of economists. The central bank’s monetary policy decision to keep borrowing costs unchanged for a third time since July comes as Israel is more than two weeks into a war with Hamas, which began October 7 when some 2,500 terrorists streamed into Israel by land, sea, and air, murdered some 1,400 people, mostly civilians, and injured thousands more, while taking at least 212 hostages of all ages into Gaza.

Assuming that the war will be concentrated on the southern front during the fourth quarter of the year, the economy is expected to grow by 2.3% in 2023 and by 2.8% in 2024, the central bank forecasts. That is down from its previous forecast of 3% growth this year and next year, which was published by the bank last month.

“The war is having various economic effects, both on real activity and on the financial markets,” the central bank says in a statement.

The Bank of Israel is “focusing on stabilizing the markets and reducing uncertainty, and it has activated a program to sell foreign exchange and to provide liquidity in the swap and repo markets.”

The government’s budget deficit is forecast to increase to 2.3% of GDP in 2023 and 3.5% of GDP in 2024.


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