Israel's Central Bank Cuts Key Interest Rate for Third Consecutive Time

The Bank of Israel announced on Tuesday afternoon its decision to lower the benchmark interest rate by a quarter percentage point, bringing it down to 3.25%. This marks the third consecutive rate cut and is expected to lead to cheaper mortgages for borrowers.

Several factors influenced the Monetary Committee's decision, according to Governor Prof. Amir Yaron. These included moderating inflation in recent months, a return of Israel's risk premium to pre-October 7 levels despite ongoing instability, low unemployment figures, and a substantial inventory of available housing for sale.

In July, the Bank of Israel had previously lowered the interest rate by a quarter point to 3.5%. Following that decision, Finance Minister Bezalel Smotrich criticized the central bank, urging for more significant reductions. Smotrich argued that the minimal cut did not adequately address the challenges faced by households and businesses, was disconnected from the economy's needs, and hindered the high-tech and export sectors. He asserted that a sharper rate decrease was necessary to alleviate the cost of living and counteract the strengthening shekel.