(Communicated by the BOI Spokesperson)
The Bank of Israel Monetary Committee decided on 7 July 2025 to leave the interest rate unchanged at 4.5%
Following are the main considerations underlying the decision:
- Economic activity continues to recover moderately against the background of high domestic and global uncertainty. The economy grew by 3.7 percent in the first quarter, close to the long-term growth trend. However, the level of economic activity is about 4 percent lower than this trend line.
- Inflation in the past 12 months declined to 3.1 percent, which is above the upper bound of the target range.
- The labor market remains tight. The ratio between the number of job vacancies and the unemployed remains high.
- Activity in the construction industry moderated in the first quarter of the year, but remains at a high level.
- Since the previous interest rate decision, the shekel has appreciated sharply, by about 7.3 percent against the US dollar, by 3.8 percent against the euro, and by 6.1 percent in terms of the nominal effective exchange rate.
- Israel’s risk premium, as measured by the 5-year CDS price and by the spreads on dollar-denominated government bonds, declined significantly, but remains higher than in the prewar period.
- According to the baseline scenario in the Research Department’s revised staff forecast, GDP is expected to grow by 3.3 percent in 2025, and by 4.6 percent in 2026. The debt to GDP ratio is expected to be about 70 percent at the end of 2025, and about 71 percent in 2026.
In view of the geopolitical uncertainty, the interest rate path will be determined in accordance with the convergence of inflation to its target range, stability in the financial markets, economic activity, and fiscal policy.
