Bank of Israel cuts interest rate to 3.75% amid strong shekel and easing inflation

Inflation in Israel remains around the midpoint of the government’s 1% to 3% target range, with annual inflation in April recorded at 1.9%.

By Pesach Benson, TPS

The Bank of Israel cut its benchmark interest rate on Monday by 0.25 percentage points to 3.75%, citing a stronger shekel, moderating inflation, and growing expectations of a possible deal to end the war with Iran.

The Monetary Committee, chaired by Bank of Israel Governor Prof. Amir Yaron, said the move follows two previous cuts earlier this year, after rates were held steady in March and February.

The rate now stands at its lowest level in several months, with the prime rate reduced to 5.25%.

The central bank said monetary policy continues to focus on price stability and supporting economic activity amid “significant geopolitical uncertainty” at home and abroad.

It noted that the conflict with Iran had weighed on real economic activity, though recent indicators point to a recovery following a temporary contraction in gross domestic product linked to the war in March.

Inflation in Israel remains around the midpoint of the government’s 1% to 3% target range, with annual inflation in April recorded at 1.9%.

The bank said the shekel’s sharp appreciation has helped ease price pressures, with the currency recently reaching a 33-year high and trading near NIS 2.89 to the dollar.

Officials also pointed to a contrasting global inflation environment, with higher rates in the United States and the eurozone, underscoring Israel’s relatively contained price pressures.

The central bank reiterated that future rate decisions will depend on incoming data, including inflation trends, exchange rate developments, and the evolving security situation.