Bank of Israel Cuts Interest Rates to 3.25%

The Bank of Israel lowered interest rates by 25 basis points to 3.25% on Tuesday, marking the third consecutive reduction following cuts in May and July. This move brings borrowing costs to their lowest level in nearly four years, aimed at providing relief to households and businesses struggling with loan repayments after prolonged hostilities.

Governor Amir Yaron previously described the meeting as a live one, noting that the decision required balancing subdued inflation and a strong shekel against geopolitical and fiscal risks. While second-quarter GDP rose 15.4% as the economy recovered from military operations against Iran in February, the central bank cautioned that these figures only partially reflect the recovery and that economic activity has moderated entering the third quarter.

The decision follows a drop in the annual inflation rate to 1.5% in July, a five-year low. While the Manufacturers Association of Israel welcomed the cut as a necessary step, President Avraham Novogrotzky argued the response was lagging and urged a more rapid path of rate cuts to protect exporters whose profits have been eroded by a strong shekel.

The central bank is scheduled to make its next rate decision on October 21, just six days before a general election.