Bank of Israel Cuts Interest Rate by 0.25% Amid Cautiously Optimistic Forecast

The Bank of Israel announced a reduction of the interest rate by 0.25% to 4.5%, amid a cautiously optimistic forecast for the Israeli economy, even following the downturn caused by the war.

In the report accompanying the announcement, the BoI noted that inflation in most goods and services had either declined into the target range of 1-3% or come close to that range. The report states that the annual rate of inflation will decline to 2.4% in 2024 and 2% in 2025.

In reference to the war, the BoI's report noted that its forecast is based on the fighting being contained to the southern front, and while it stated that the government's budgetary decisions to deal with the war create significant uncertainty, it nevertheless did not revise its forecast downward.

The report noted that while they are improving, investment and consumption remain significantly below pre-war levels and in comparison to the rest of the world. The BoI nevertheless forecasts that GDP will be back to 5% by 2025.