Bank of Israel: Keeps benchmark interest rate at 4.50%

Bank of Israel: Keeps benchmark interest rate at 4.50%

The Bank of Israel (BoI) has left its benchmark interest rate unchanged at 4.50% for the eighth consecutive time, as announced on Monday. The decision was made in response to geopolitical developments and the moderate recovery of economic activity [1].

BoI Governor Prof. Amir Yaron highlighted the improving state of the Israeli economy but noted that the effects of the war, uncertainty, and various challenges are still present. The central bank's policy is focused on stabilizing markets, reducing uncertainty, and maintaining price stability while supporting economic activity [1].

Inflation has remained stable at 3.4%, but the BoI expects it to increase in the first half of 2025 due to tax changes, such as the increase in VAT to 18%, and continued restrictions on supply and excess demand. The inflation rate is projected to reach approximately 4% in the first quarter of 2025, which is above the bank's target range of between 1% and 3% annually [1].

The BoI also revised its GDP predictions for 2024, 2025, and 2026, forecasting growth rates of 0.6%, 4.0%, and 4.5%, respectively. The deficit is expected to be 4.7% of GDP in 2025 and 3.2% in 2026, mainly due to the end of the war's direct expenses [1].

In contrast, Bank Indonesia (BI) has cut its benchmark interest rate to 5.50% from 5.75%, effective from May 21, 2025. The decision was made to align with the 2025 and 2026 inflation forecasts, which are within the 2.5 plus or minus 1% target, and to boost economic growth. The first quarter of 2025 saw economic growth of 4.87% [2].

References:
[1] https://www.jpost.com/business-and-innovation/banking-and-finance/article-836300
[2] https://en.tempo.co/read/2009548/bank-indonesia-slashes-benchmark-interest-rate-to-5-50