After months of hesitation... Bank of Israel lowers interest rate to 3.75%

SadaNews - The Bank of Israel has reduced the key interest rate by 0.25% today, Monday, bringing it down to 3.75%, marking the second interest rate cut since the beginning of this year, amid a decline in inflation rates and the stabilization of the shekel exchange rate, alongside increasing expectations that the war with Iran may come to an end.

The Bank of Israel stated in a press release that the Monetary Policy Committee decided to lower the interest rate to 3.75%, while the preferential (prime) interest rate will be 5.25%, after keeping the rate steady at 4% during the last two consecutive decisions.

This decision comes after months of hesitation within the central bank regarding lowering rates, despite inflation remaining within the targeted range, due to uncertainties related to the war with Iran and Lebanon, and concerns about the potential for inflation to rise again, particularly against the backdrop of rising fuel prices.

The bank's decision noted that the stability of the annual inflation rate at 1.9%, along with the improved exchange rate of the shekel, prompted the Monetary Policy Committee to return to a path of interest rate reduction, amid indications of a decrease in the likelihood of resuming the war with Iran.

The Bank of Israel had previously cut the interest rate for the first time this year in January by 0.25%, before deciding to maintain it during the last two meetings, despite the decline in inflation, against a backdrop of regional tensions and economic instability.

Following the previous decision to maintain the rate, Israeli Finance Minister Bezalel Smotrich criticized Bank of Israel Governor Amir Yaron, claiming that keeping the interest rate at its previous level was "a wrong decision not supported by the macroeconomic data of Israel."

Smotrich stated at that time that "the shekel is strong, inflation is declining, and we are deeply within the targeted range," asserting that "the central challenge right now is economic growth and the need to alleviate burdens on citizens and homeowners with loans and small and medium-sized enterprises," adding that "credit is choking the economy and delaying recovery," as he put it.

The economic circles in Israel are awaiting the impact of the interest rate cut decision on the mortgage lending market, investment, and economic activity, amid slowing growth and rising living costs in recent times.