Tel Aviv: In the aftermath of the U.S.-brokered ceasefire between Israel and Hamas, the Bank of Israel has decided to maintain its benchmark interest rate at 4.5%, signaling a careful and measured approach to monetary policy despite the potential economic relief brought by the temporary peace.
Deputy Governor Andrew Abir highlighted that although certain economic indicators, such as a decline in inflation and a rebound in labor supply, might suggest room for easing rates, the central bank remains cautious. Abir emphasized that the post-conflict period could trigger a surge in consumer spending, which may reignite inflationary pressures and undermine financial stability if not managed carefully.
September data indicated a notable dip in inflation, with consumer prices rising only 2.5% year-on-year, comfortably within the government's 1–3% target range. On a month-on-month basis, consumer prices fell by 0.6%, offering some relief to households. However, the Bank of Israel is wary that pent-up demand from the resolution of the conflict could offset these gains, making a premature interest rate cut risky.
Abir stressed that the bank's current policy has successfully stabilized inflation and supported market confidence. He reiterated that future decisions would prioritize long-term economic stability rather than reacting to short-term political developments. “We will not rush into rate cuts solely because of a ceasefire,” Abir stated, underscoring a strategy rooted in prudence.
While business leaders, particularly from the export sector, have called for rate reductions to enhance competitiveness amid a stronger shekel and global uncertainties, the central bank remains committed to a cautious path. The next policy review is scheduled for November 24, 2025, when officials will reassess economic conditions and determine whether any adjustment to the interest rate is warranted.
The Bank of Israel’s stance reflects a broader effort to balance post-conflict optimism with fiscal discipline, ensuring that temporary relief does not compromise long-term economic resilience.