Israel Central Bank Cuts Interest Rate to 3.50%: Shekel's Strong Performance

The Israel Central Bank lowered its benchmark interest rate from 3.75% to 3.50% on Monday. This is the second consecutive rate cut. Borrowing costs have fallen to their lowest level since the end of 2022. The decision was in line with the median forecast in a Bloomberg survey. The central bank acted to address the strong shekel and moderate inflation expectations, which outweighed the projections for accelerating economic growth. Policymakers are under increasing pressure to manage the low interest rates through the value of the currency. Israeli technology companies and other exporters expressed their concerns about the impact of the strong shekel on their operations. Finance Minister Bezalel Smotrich has repeatedly called on the public to request the Israel Central Bank to lower interest rates. The shekel lost more than 5% of its value against the dollar last month, following the restart of rate cuts. The currency was among the worst performers in Bloomberg's expanded global currency basket. However, the shekel is still trading near its strongest level in decades. The bank maintained its forward guidance. In a statement, it said that future interest rate decisions would be determined by “inflation dynamics, economic performance, geopolitical uncertainty, and financial developments.” The central bank's research department projected that inflation would reach 1.8% by the end of the second quarter of 2027. It also forecast that interest rates would be around 3%. The Israel Central Bank's decision to cut interest rates is due to the shekel's strong performance and moderate inflation expectations. This decision will be an important factor in shaping the future growth projections of the Israeli economy. A Strong Shekel and Its Implications