Israel keeps rate at 4.5% as BoI highlights global and domestic risks

ISRAEL - In Brief 08 Apr 2025 by Sani Ziv

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Policy rate held steady for ninth consecutive meeting The Bank of Israel kept its benchmark interest rate unchanged at 4.5% on April 7th, marking the ninth consecutive decision to maintain the current level. The move was widely expected by markets. The Monetary Committee adopted a slightly dovish tone regarding inflation and domestic demand. The Bank of Israel’s Governor noted that inflation (currently 3.4%) remains above the target but is on a downward trajectory and expected to decline in the coming months. Economic indicators point to recovery in activity, even if the overall level of activity remains below pre-war levels. The labor market remains tight, although some easing in labor supply constraints has been observed. Additionally, the bank estimates that the government deficit will decline to 4.2% of GDP—significantly lower than earlier projections. Risks escalate amid global volatility and domestic uncertainty Despite the slightly softer tone on inflation, the Monetary Committee emphasized a high level of uncertainty across multiple fronts. Key risks include renewed fighting on the southern border—which has contributed to an elevated risk premium on Israeli assets—the U.S. administration’s announcement of new tariffs (which triggered sharp declines in global markets), and downward revisions to global growth and trade forecasts. Despite the slightly softer tone on inflation, the Monetary Committee emphasized a high level of uncertainty across multiple fronts. Key risks include renewed fighting on the southern border—which has contributed to an elevated risk premium on Israeli assets—the U.S. administration’s announcement of new tariffs (which triggered sharp dec...