Following assessments, the Bank of Israel’s Monetary Committee, headed by Bank of Israel Governor Prof. Amir Yaron, decided today (Wednesday) to keep the interest rate at its current rate of 4.5 percent for the fifth consecutive time. Regarding the housing market, the interest rate announcement stated: “The limitations on construction industry activity given the war are still significant, and activity in the construction industry is slowly recovering.”
By Nimrod Bosso, Nadlan Center
Following assessments, the Bank of Israel’s Monetary Committee, headed by Bank of Israel Governor Prof. Amir Yaron, decided today (Wednesday) to keep the interest rate at its current rate of 4.5 percent.
As you may recall, beginning in April 2022, the Bank of Israel began a series of interest rate increases that brought it from its close-to-zero level of 0.1 percent to 4.75 percent, from mid-2023 to the end of the year. In January 2024, the Monetary Committee slightly reduced the interest by a quarter of a percent and set the Bank of Israel’s interest rate at 4.5 percent. Since then, the Bank’s interest rate has remained at this rate for five consecutive interest rate decisions.
The Bank of Israel’s interest rate announcement stated, “Since the outbreak of the Iron Swords War, and in recent months in particular, geopolitical uncertainty and its effects on the economy have increased. These fiscal uncertainties are also reflected in the high yield differential between the Israeli government and US bonds and CDS spreads close to record levels. Inflation has been on an upward trend in recent months and remains slightly above the upper bound of the target range. The increase in the inflation rate mainly reflects the increase in the rate of change in the prices of nontradable components.”
Regarding the housing market, the report said, “The increase in home prices and mortgage performance continues. The limitations on construction industry activity in view of the war are still significant, and activity in the construction industry is slowly recovering.”
Nadav Fasandi, CEO of Eldar Mortgages, responded to the interest rate decision: “The Bank of Israel left the interest rate at 4.5 percent, as expected, in view of inflation and geopolitical instability following the war. While there is a tendency in global markets to lower the interest rate, it has been decided to maintain stability in light of the economic and security challenges in Israel. Last month, mortgages totaling NIS 9.07 billion were taken out, and the average mortgage taken out reached NIS 1.013 million. In addition, 38 percent of mortgages approved in July were taken out for home purchases priced over NIS 3 million, indicating that the real estate market is recovering and continues to climb.
“At the same time, considerations have recently been added that prevent interest rate cuts, such as soaring inflation, which has risen to 3.2%, and the pace of price increases in the real estate market, which continues to increase. The Governor’s decision to keep the interest rate reflects a cautious approach—this is a move intended to support economic growth and market volatility. My assessment is that in view of high inflation and the many geopolitical risks, the Bank of Israel interest rate will remain at its current level until the end of 2024. and that an interest rate reduction will be realized during the first quarter of 2025, towards the second quarter, of course, assuming that the geopolitical situation in Israel improves or at least there is no significant deterioration.”
