ALBAWABA - The Bank of Israel kept short-term borrowing interest rates unchanged for the third consecutive time, citing the necessity of preventing inflation from rising due to the weakening shekel amid Israel's ongoing conflict in Gaza.
The central bank retained the benchmark interest rate at 4.75%, the highest level since late 2006. The bank had raised interest rates ten consecutive times in a strong tightening cycle, lifting the interest rate from 0.1% in April of last year before temporarily pausing in July and August.
The inflation rate fell to 3.8% in September, down from 4.1% in August, but it remains above the annual target range of 1% to 3%.
Officials have warned that sharp interest rate cuts at this time would further weaken the shekel, which has already reached its lowest level against the dollar in 8.5 years, potentially leading to higher inflation.
In updated forecasts, economists at the Bank of Israel expected inflation to move to 2.9% next year, with a further drop to 2.5% by the end of 2024.
As a result of the war that began on October 7, the bank reduced its growth estimates for Israel in 2023 to 2.3% from the previous 3.0% and to 2.8% for the next year from the previous 3.0% projection. Economists at the bank also believe that the main interest rate will decrease to the range of 4.0% to 4.25% next year.
The bank assumes that the conflict between Israelis and Palestinians will continue only in southern Israel. Amir Yaron, the central bank governor, noted that an expansion of the conflict's scope would lead to reassessing the estimates once again.
