Bank of Israel holds key interest rate steady amid war uncertainty

JERUSALEM (Reuters) -The Bank of Israel kept short-term borrowing rates unchanged for a fourth straight decision on Monday as policymakers remained focus on maintaining financial stability during Israel’s war against 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 and October.

All 14 economists polled by Reuters had forecast no rate change.

“The war is having significant economic consequences, both on real economic activity and on the financial markets,” the central bank said in a statement following its decision.

“There is great amount of uncertainty with regard to the expected severity and duration of the war,” it said.

The central bank cut its forecasts for economic growth in 2023 and 2024 in view of the impact of the war, now seeing an expansion of 2% next year, down from 2.8% a month ago.

Officials have previously cautioned that steep rate cuts at the moment would weaken the shekel and push up inflation.

In its statement, the central bank pointed to the conditions needed for it to provide a more supportive monetary policy.

“The interest rate path will be determined in accordance with developments in the war and the uncertainty derived from it,” it said.

“Insofar as the recent stability in the financial markets becomes entrenched and the inflation environment continues to moderate toward the target range, monetary policy will be able to focus more on supporting economic activity.”

Israel’s inflation rate eased to 3.7% in October from 3.8% in September to remain above an annual target range of 1-3%.

(Reporting by Steven Scheer; Editing by Toby Chopra, William Maclean)