Israel's Bank Cuts Interest Rate to 3.5% and Expects GDP Growth

SadaNews - Today, Monday, the Bank of Israel announced a 0.25% cut in the interest rate, bringing it down to 3.5%, marking the second consecutive reduction. It also predicted a 4% growth in Gross Domestic Product (GDP), while Finance Minister Bezalel Smotrich quickly criticized the move, pointing out that he had previously urged for a sharper reduction.

The monetary committee of the Bank of Israel decided to lower the interest rate after inflation stabilized in the middle of the target range set by the bank, which is at 1.9%. The bank limited the cut to 0.25% despite pressure from economic entities, primarily exporters, to reduce it further.

According to a statement from the Bank of Israel, "The monetary committee's policy focuses on price stability, supporting economic activity, and market stability."

The statement also noted that "the course of interest rates will be determined in accordance with the development of inflation, economic activity, geopolitical fluctuations, and financial developments."

Smotrich: A Step Not Related to Economic Needs

After the interest rate decision was published, Smotrich attacked the Bank of Israel, saying: "I had urged the Bank of Israel to sharply reduce the interest rate," arguing that "the slight decrease in the interest rate does not match the challenges facing families and companies, nor is it related to the needs of the economy, but instead exacerbates the situation for the advanced technology (high-tech) and export sectors."

Smotrich mentioned that "a sharp reduction in the interest rate is the correct step that will alleviate the cost of living and balance the appreciation of the shekel."

Mortgage

According to calculations by the Mortgage Consultative Association, a 0.25% drop in the interest rate means a reduction in the monthly mortgage installment of approximately 15 shekels for every 100,000 shekels borrowed at the base interest rate for a period ranging from 20 to 30 years.

Thus, for those who obtained a mortgage of 500,000 shekels, this provides them with a monthly saving of 75 shekels, while for those who obtained one million shekels within this scenario, this saves them 150 shekels.

At the same time, the Bank of Israel published its updated growth forecasts for the first time since the ceasefire that paused the war on Iran and the signing of the agreement in Lebanon; according to the updated forecasts, a 4% growth in GDP is expected this year, and 5.5% in 2027.

Last May, the Bank of Israel decided to cut the interest rate by 0.25% to 3.75%, as a result of falling inflation and the appreciation of the shekel.

In March, the Bank of Israel decided to keep the interest rate unchanged at 4%, with the monetary committee opting not to reduce the interest rate despite inflation remaining in the target range set by the bank, which is 2%, in light of the uncertainty that followed the war on Iran and Lebanon, and concerns about rising inflation for reasons including rising fuel prices.

In February, a similar decision was made to keep the interest rate unchanged, despite moderating inflation and the prevailing tensions between the United States and Iran; at that time, Smotrich criticized the Governor of the Bank of Israel, Amir Yaron, for this decision, describing it as "a wrong decision unsupported by macroeconomic data of the Israeli economy."