Bank of Israel Expected to Cut Interest Rate to Ease Economic Pressure

The Bank of Israel is set to announce its interest rate decision today, with market forecasts predicting a reduction from 3.75% to 3.5%. This potential cut would mark another easing step, benefiting hundreds of thousands of Israelis holding mortgages and loans linked to the prime interest rate. Alongside the rate decision, the bank is also expected to release an updated economic growth forecast, the first since the conclusion of Operation "Roaring Lion."

The main factor enabling the rate cut is the decline in inflation, which currently stands at 1.9%, within the Bank of Israel's price stability target. This gives Governor Amir Yaron room to ease financial conditions for the public and the economy. Meanwhile, the Israeli economy is still facing a slowdown, having contracted in the first quarter of the year. The rate cut aims to stimulate consumption, investment, and business activity.

For borrowers, the reduction in the prime rate from 5.25% to 5% would lower monthly payments for those with prime-linked mortgages. According to the Mortgage Advisors Association, an average 450,000-shekel mortgage over 25 years would save about 66 shekels per month, totaling nearly 20,000 shekels over the loan's lifetime. Businesses and borrowers using credit financing are also expected to benefit from reduced borrowing costs.

In political reactions, Smotrich criticized the Bank of Israel governor, calling the move "too little, too late." Economists suggest that if the security and economic situation remains stable, further rate cuts could occur within the next year, potentially lowering rates to around 3%. Such reductions could further ease mortgage burdens and support a recovery in the real estate market. However, the Bank of Israel is expected to proceed cautiously due to ongoing security uncertainties and their economic impact.