2024-01-01T17:22:16+00:00
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/ The Central Bank of Israel announced on Monday, reducing interest rates by 25 basis points to 4.5 percent, which is the first change in course since the bank began raising interest rates steadily in April 2022.
This comes amid growing uncertainty about the economic costs and duration of the ongoing war with Hamas.
The central bank said in a statement that “the war has major economic consequences, both on real economic activity and on financial markets.”
The bank added, “There is a great deal of uncertainty regarding the expected severity and duration of the war, which in turn affects the extent of its impact on activity.”
The policy decision to reduce borrowing costs comes after keeping the key lending rate unchanged at 4.75 percent since July, and with Israel entering the war with Hamas for about three months.
To reduce rising inflation, the Bank of Israel has been steadily raising interest rates from a record low of 0.1 percent in April 2022 to 4.75 percent in July 2023.
Regarding the economy, the Bank of Israel expected that the gross domestic product would grow by 2 percent in both 2023 and 2024, and by 5 percent in 2025.
The bank added that indicators of economic activity and employment status indicate a gradual recovery after the sharp decline that occurred with the outbreak of war, but there is a lot of variation between industries.
In turn, the Governor of the Bank of Israel, Amir Yaron, said that the war budget costs – expenses plus loss of income – are expected to reach about 210 billion shekels ($58.3 billion).
The governor added that the government must focus on war expenses and expenses that constitute the engines of growth, while reducing non-essential expenses, and certainly those that do not support growth.
Yaron expected that the debt-to-GDP ratio would reach 66 percent of GDP by the end of 2024 and 2025.