BoI leaves rate unchanged as inflation concerns mount

Rising inflation and the expansion of the war in Gaza mean that the interest rate is unlikely to be cut until towards the end of the 2025.

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 eleventh consecutive time that the Bank of Israel has left the interest rate unchanged, after cutting it from 4.75% in January 2024.

The decision was due to the recent rise in the annual rate of inflation to 3.6%, after the higher than expected April Consumer Price Index (CPI) reading, and well above the upper limit of the Bank of Israel’s annual target range of 1%-3%. The Bank of Israel said, “The forecasters project that the convergence of inflation to the target range will be later than their assessments prior to the publication of the April CPI.”

Inflation jumps

The Bank of Israel is also concerned about the impact of the economic uncertainty and fiscal implications of the expanded war effort in Gaza as well as the tight job market. The Bank of Israel said, “In view of the continuing war, the Monetary Committee’s policy is focusing on stabilizing the markets and reducing uncertainty, alongside price stability and supporting economic activity. The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.”

Analysts expect no rate hikes until towards the end of the fourth quarter of 2025.

Published by Globes, Israel business news – en.globes.co.il – on May 26, 2025.