Bank of Israel Holds Benchmark Rate at 4.5%

The Bank of Israel kept its benchmark interest rate unchanged at 4.5% for the 14th consecutive meeting on September 29, in line with market expectations. Policymakers cited elevated geopolitical uncertainty, as the ongoing Gaza conflict and deteriorating international sentiment continue to weigh on economic activity and investment. Annual inflation eased to 2.9% in August, marking a one-year low and returning to the government’s 1-3% target range. The labor market remains tight, partly due to reserve mobilization and shortages of non-Israeli workers. Meanwhile, economic activity is gradually recovering, supported by consumer spending, investment, and construction, although several indicators remain below pre-conflict levels. Elevated defense spending and a stronger shekel also influence the economy. Looking ahead, the central bank indicated that future rate decisions will balance inflation, economic growth, financial stability, and fiscal considerations amid ongoing geopolitical risks.