The Monetary Committee of the Bank of Israel decided today (Monday) to leave the interest rate at 4.5% in the second interest rate decision of 2025. Regarding the real estate sector, the committee stated: “The construction sector is still affected by labor force constraints, but the gap between the number of employees in the sector and their number before the war has narrowed.”
The Bank of Israel decided today (Monday) to keep the interest rate unchanged at 4.5% for the ninth consecutive time and in the second interest rate decision of 2025. Even before the decision, most assessments predicted that the rate would remain unchanged, primarily due to economic uncertainty and an inflation rate above the target.
The Monetary Committee of the Bank of Israel, led by Governor Prof. Amir Yaron, reduced the interest rate from 4.75% to 4.5% at the beginning of January 2024. Since then, the Bank of Israel has kept the interest rate unchanged for over a year—despite central banks in Europe and the US beginning to lower rates following the moderation of inflation.
In today’s decision, the Monetary Committee stated: “Economic activity in the economy continues to recover moderately against the backdrop of geopolitical developments. As expected, the annual inflation rate has risen, partly due to tax increases, and remains above the upper limit of the target range, expected to return within the target range in the second half of the year. In the fourth quarter, growth slowed, mainly reflecting ongoing supply constraints. The country’s risk premium continued to decline, although it remains high compared to the period before the war.”
Regarding the real estate sector, the committee wrote: “The construction sector is still affected by labor force constraints, but the gap between the number of employees in the construction industry and their number before the war has narrowed. Housing prices continued to rise, with an annual increase rate of 7.3%. In January, the housing component of the index remained unchanged. Rent prices rose by 0.4% in January, while owner-occupied housing prices declined by 0.7%. In December, mortgages totaling approximately NIS 13.8 billion were taken, partly due to tax increases, while in January, mortgages totaling around NIS 7.3 billion were taken, similar to previous months.”
Dror Ohav Zion, CEO and owner of DARA Real Estate Marketing, said the Bank of Israel’s decision is understandable given that the annual inflation rate currently stands at 3.8%, significantly above the Bank of Israel’s defined threshold. “Most economists expect continued price increases in various sectors of the economy. As a reminder, we are approaching the approval of the 2025 budget, and how it is structured is expected to significantly impact inflation trends later this year.
“A responsible budget could increase the likelihood of interest rate cuts during 2025. These cuts would ease the burden on homebuyers, investors, developers, and businesses in general, dealing with an unstable reality after nearly a year and a half of war. In our view, keeping the interest rate unchanged will not significantly affect housing demand or the residential market. However, an interest rate cut is certainly expected to provide a positive boost to the housing market.”
Tzala Rosenblum Amor, CEO of M. Aviv Group: “It is finally time for the Governor, who is a world-renowned professor, to reconsider from a risk management perspective the cost-benefit balance of adhering to the agenda that maintaining a high interest rate supposedly ensures economic stability during wartime. In my opinion, and despite the rationale behind this policy last year, the Governor should have considered lowering the interest rate as early as the fourth quarter of 2024, particularly to support real estate companies and homebuyers.”
