Israel’s Central Bank decided Monday to keep interest rates at 4.5% amid heightened geopolitical uncertainty amid wars between Israel and the Palestinian-backed Hamas and Lebanese Shiite Hezbollah terrorist groups. by Iran, continue to wreak havoc on the economy.
“Continuing geopolitical uncertainty is delaying the return of the economy to its pre-war level of activity,” the Bank of Israel said in a statement.
“The most recent indicators of economic activity indicate a mixed picture of the level of economic activity in the fourth quarter, with a slight weakening trend. »
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“In financial markets, Israel’s risk premium has declined, although it remains high,” the bank added.
Before the decision, economists agreed that the base rate would remain stable, but predicted that borrowing costs for mortgage holders, among others, could start to fall next year to reach a level of 4% by the end of 2025, similar to what is happening in the United States and Europe.
In January this year, the Bank of Israel cut interest rates by 25 basis points, from 4.75% to 4.5%, for the first time in almost four years, to support households and businesses, while the economy was damaged by the war against Hamas and the inflationary environment weakened. Since then, borrowing costs have remained unchanged, amid increased inflationary pressures, ongoing regional tensions and higher tax spending due to rising defense costs.
In September, Israel’s annual inflation rose to 3.5% from 3.6% in August, after accelerating from 3.2% in July and 2.9% in June. In October, it remained stable at 3.5%. However, it remains above the target range of 1% to 3% set by the government.
“The trajectory of interest rates will be determined based on the convergence of inflation towards its target, the continued stability of financial markets, economic activity and fiscal policy,” the Central Bank added.
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