Israel's Economic Stability Under Siege: Central Bank Holds Steady Amid Conflict

The Bank of Israel has kept its interest rates unchanged for the sixth consecutive meeting, amidst ongoing conflicts with Hamas and Hezbollah. As inflation rises and economic growth slows, the central bank remains cautious, maintaining the benchmark rate at 4.50% and addressing increased investor risk since the war began.

The Bank of Israel opted to maintain its interest rates unchanged on Wednesday for the sixth consecutive session. This decision comes despite the country's escalating conflict with Hamas in Gaza and Hezbollah in Lebanon, which continues to drive inflation upward and weaken economic performance.

The central bank's choice to hold the benchmark rate at 4.50% reflects concerns over Israel's rising investor risk premium, an issue that has intensified since hostilities commenced on October 7, 2023. Earlier, the bank had reduced the rate by 25 basis points in January following a dip in inflation and slowing economic growth.

Despite expectations from all 14 Reuters-polled analysts that rates would remain steady, the decision, originally delayed from October 7, underscores the fragile balance between inflation, which climbed to 3.6% in August, and economic growth, which decelerated sharply in the second quarter.

(With inputs from agencies.)