Bank of Israel Holds Interest Rate at 4.5% for 13th Time in a Row

Despite market expectations for a rate cut due to the strengthening shekel and easing inflation, the Monetary Committee of the Bank of Israel has once again decided to keep the interest rate unchanged. On Wednesday, the committee announced that the rate will remain at 4.5% — the 13th consecutive decision to hold steady. The last cut was in January 2024, when the rate was reduced from 4.75% to 4.5%, shortly after the outbreak of Iron Swords war.

By Nadlan Center Staff

In its statement, the Bank of Israel explained that “in light of geopolitical uncertainty, the interest rate path will be determined by the convergence of inflation toward its target, stability in the financial markets, economic activity, and fiscal policy. The economy is recovering after a significant downturn during Operation Rising Lion, though uncertainty remains high. Annual inflation is slightly above the target range. Israel’s risk premium has stabilized at a low level compared to the eve of Operation Rising Lion, but remains higher than before the Iron Swords war.”

The Bank noted that “real-time indicators of economic activity in July show a rapid recovery to pre-operation levels. Credit card spending data points to an immediate rebound after Operation Rising Lion, with spending levels now exceeding those prior to the operation.”

On the Israeli housing market, the Bank reported: “Annual inflation in the housing component of the CPI rose slightly in July, reaching 4.2%. The rent component rose by 3.3% year-over-year, with a 2.6% increase in renewed contracts and a 5.4% increase in contracts with tenant turnover. Over the past four months, housing prices declined, and the annual rate of increase moderated to 2.5% in May–June. CBS data shows that in June, transaction volumes continued to fall, while the inventory of new unsold apartments rose. In July, new mortgages totaled approximately NIS 10.7 billion, with delinquency rates remaining low and stable.”

The Mortgage Advisors Association criticized the decision, stating, “Freezing the interest rate prevents recovery. The Bank of Israel finds itself nearly powerless in the face of today’s economic reality. While the government continues to increase spending and the deficit, the Governor is left to prevent shocks without the ability to provide the necessary boost through an immediate rate cut.”

The Association added: “Maintaining a high interest rate leaves households struggling to breathe under the weight of their mortgages. Inflation is nearing target, but mortgages remain expensive. With regional security concerns blocking relief, families with housing loans remain in limbo waiting for a rate cut. The macroeconomic data requires comprehensive solutions — starting with recognition that we are in the midst of a crisis. Only after such acknowledgment can a dedicated ministerial committee be established to find real solutions.”