Central bank leaves interest rates at 4.5% amid war, high inflation

The Bank of Israel decides to leave interest rates steady at 4.5% amid renewed fighting with the Hamas terror group in Gaza, a higher inflation environment, and “high global uncertainty.”

“Economic activity continues to recover at a moderate pace, alongside high domestic and global uncertainty,” the central bank says in a statement. “There are several risks for a possible acceleration of inflation or for it not converging to the target range: geopolitical developments and their impact on economic activity, supply constraints, worsening global terms of trade, and volatility of the shekel.”

Ahead of the interest rate decision, economists were in consensus that the central bank would not rush to lower the base lending rate after inflation quickened at a faster pace than expected in April. Annual inflation over the past 12 months accelerated to 3.6%, up from 3.3% in March, as foreign travel costs soared. The government’s annual target range of inflation is between 1% to 3%.

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.