Bank of Israel Cuts Interest Rate to 3.5% Amid Stable Inflation

The Bank of Israel reduced its key interest rate by 0.25% on Monday, bringing it down to 3.5%. This decision followed the stabilization of inflation at 1.9%, which is within the bank's target range. Despite pressure from economic sectors, particularly exporters, to implement a more significant rate cut, the Monetary Committee opted for a modest reduction.

Previously, in May, the bank lowered the rate by 0.25% to 3.75% due to declining inflation and a strengthening shekel. In March and February, the bank chose to keep the rate steady at 4%, citing uncertainties related to conflicts involving Iran and Lebanon and concerns over potential fuel price increases that could drive inflation higher. These geopolitical tensions influenced the bank's cautious approach despite inflation being within the 2% target.

Finance Minister Bezalel Smotrich criticized the March decision to maintain the rate, calling it a "wrong decision not supported by Israel's macroeconomic data." The recent cut reflects the bank's response to the current inflation environment and ongoing economic conditions.