The Bank of Israel decided on Wednesday to keep its benchmark interest rate unchanged at 4.5% due to a number of factors, including the Hamas war and geopolitical uncertainties, the absence of a 2025 state budget and the fiscal deficit.
Another key factor leading the bank’s Monetary Committee to view the current interest rate as sufficient to restrain inflation are wage increases and the tight labor market, which are “expected to moderate in the middle of 2025,” Bank of Israel Gov. Amir Yaron told Israeli financial paper Globes on Thursday.
The tight labor supply is due to the war as Israelis leave their workplaces to serve in the IDF reserves and a shortage of non-Israeli workers.
“In the construction and the accommodation and food service industries there is a high rate of job vacancies, while the job vacancy rate in services and manufacturing remains stable,” the central bank said.
Housing market activity continues to recover. Home prices increased on a year-on-year basis.
However, the limitations on construction industry activity due to the war, coupled with the shortage of workers, means that the sector is recovering only slowly.
Since the previous interest rate decision, the shekel has remained unchanged against the dollar and has weakened by about 3% vis-à-vis the euro.
The minutes of the monetary discussions ahead of this interest rate decision will be published on Sept. 11. The next decision regarding the benchmark rate will be published on Oct. 9.
