JERUSALEM (Reuters) -The Bank of Israel kept short-term borrowing rates unchanged for a third straight decision as expected on Monday, citing the need to prevent an uptick in inflation as a result of a weaker shekel during Israel’s war against Palestinian Islamist group Hamas.
The central bank held its benchmark rate at 4.75% – its highest level since late 2006. It had raised rates 10 straight times in an aggressive tightening cycle that has taken the rate from 0.1% last April before pausing in July and again in August.
The inflation rate eased to 3.8% in September from 4.1% in August to remain above an annual target range of 1-3%.
Officials have cautioned that steep rate cuts at the moment would further weaken the shekel, which is already at an 8 1/2 year low versus the dollar, and push up inflation.
In updated forecasts, the Bank of Israel’s economists projected inflation moving to a 2.9% rate in the coming year and end 2024 at 2.5%.
As a consequence of the war that began on Oct. 7, after Hamas attacked Israeli towns in the worst assault on civilians in the country’s history, the bank trimmed Israel’s growth estimate for 2023 to 2.3% from 3.0% and to 2.8% next year from a prior 3.0%.
The bank’s staff also believes the key interest rate will drop to 4.0%-4.25% in the coming year.
(Reporting by Steven Scheer and Ari Rabinovitch; Editing by Sharon Singleton)