Bank of Israel cuts interest rate to 3.25% in surprise move

The move was also the central bank’s third consecutive rate cut. The prime lending rate will now stand at 4.75%. The Bank of Israel had previously lowered rates by a quarter point in both May and July.

The main argument in favor of further monetary easing was annual inflation, which currently stands at just 1.5%, its lowest level since May 2021.

That puts inflation in the lower half of the government’s 1%-3% price stability target range and gives the central bank additional room to reduce borrowing costs.

The strength of the shekel provided another reason for the cut. A stronger currency lowers the cost of imported goods, including raw materials, consumer products and energy, helping moderate price increases.

At the same time, the stronger shekel makes conditions more difficult for exporters and Israeli industry, and lower interest rates could provide some relief.

The decision was nevertheless relatively unexpected because of rising government spending and continued security uncertainty.

It also came on the same day that gasoline prices jumped to a record NIS 8.25 per liter for 95-octane fuel, a rise expected to feed into the consumer price index.

That could add to inflationary pressure in the coming months, when price increases are already expected to accelerate.