Bank of Israel Open to Further Rate Cuts if Inflation Stays Low
Bank of Israel signals more rate cuts possible if inflation remains low, citing weak price pressures and economic data.
The Bank of Israel could continue lowering interest rates if inflation remains subdued and the economy absorbs the latest reduction smoothly, Deputy Governor Andrew Abir said on Tuesday.
Speaking after the central bank cut its benchmark rate by a quarter-point to 3.25% — a near four-year low and the third consecutive reduction — Abir said the decision was driven primarily by July inflation of 1.5%, which sits below the midpoint of the government's 1%-3% annual target.
He noted that inflation in Israel has been easing, helped by the shekel's strength against the dollar, even as prices rise in many other economies. "We didn't really see a compelling reason not to continue with the process of reducing interest rates," Abir said.
Eight of 14 economists polled had expected the bank to pause this month.
On growth, Abir described second-quarter GDP expansion of 15.4% annualised as "reasonable, but not fantastic," noting that much of the gain came from production by Israeli companies abroad rather than domestic activity.
Future moves remain data-dependent, he said. The central bank's economists currently see rates bottoming at 3% by mid-2027, with an updated forecast due at the next policy meeting on October 21.
"If inflation stabilises and goes back up a bit, we could pause around these levels, or if it continues going down, or if there's a continued appreciation of the currency, we could continue reducing rates," Abir said.
He also flagged lingering geopolitical uncertainty, though Israel's risk premium and credit default swap rates have returned to pre-war levels. The next rate decision comes just before national elections on October 27, but Abir insisted the vote plays no role in policy. "We're driven by the data, not by the fact that there's an election coming up," he said.