The Bank of Israel Monetary Committee, headed by Governor Prof. Amir Yaron, has announced that it has kept the interest rate unchanged at 4.5%, as expected. This is the tenth consecutive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January 2024.
In its decision, the Bank of Israel said that inflation remains high at 3.4%, which is above the 3% upper bound of the target range, although inflation is expected to continue moderating toward the target range during the coming months.
The Bank of Israel added that the geopolitical situation has again become a major focus preventing an easing of monetary policy. The escalation in the south and the IDF’s resumed operations in Gaza have again raised Israel’s risk premium and contributed to rising uncertainty in the Israeli market.
On top of all this, the turmoil in global markets set off by President Trump’s tariff war is also preventing the Bank of Israel from easing the interest rate burden. The US has also imposed tariffs on Israel, at a rate of 17%, which raises concerns about harming exports. The tariffs have also led to a sharp devaluation of the shekel against the dollar and the euro in recent days, which could directly stoke inflation.
The Bank of Israel research division now estimates the 2025 GDP growth rate at 3.5%, down from 4% in its previous forecast in January. This downward revision is in line with the lower forecasts of other organizations on the Israeli economy. International ratings agency Fitch recently predicted 3% growth for Israel in 2025. In 2026, the bank estimates that growth will be 4%. The updated forecast for annual inflation in 2025 is 2.6%.
The Bank of Israel estimates, “Exports of goods to the US, which constitute about 13% of total exports of goods and services, will be significantly affected by the tariffs imposed by the US government, and in addition, the other export components will be adversely affected by the damage to world trade.
“These negative effects are expected to be offset to some extent by the gradual improvement we expect in the tourism industry and by an increase in demand for defense exports. Public consumption is expected to converge to its long-term trend, due to the expected decline in war spending. The unemployment rate is expected to rise slightly from its current level due to the expected recovery in the supply of workers and against the backdrop of the moderation in demand for private consumption and exports.”
Published by Globes, Israel business news – en.globes.co.il – on April 7, 2025.
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