To protect the shekel from rising war spending, the Bank of Israel maintains interest rates

The Bank of Israel kept interest rates on the shekel unchanged at 4.5 percent, in an attempt to protect the local currency from rising war spending and inflation, amid uncertainty about when the war in Gaza will end and how tensions with Iran will end.

The Bank of Israel maintained interest rates on the shekel, unchanged, at 4.5 percent, in an attempt to protect the local currency (the shekel) from rising war spending on the one hand and its expectations of rising inflation, on the other hand.

The bank said in a statement following the Monetary Policy Committee meeting, on Monday, that it kept interest rates unchanged for the second meeting in a row, in a decision that came within the expectations of financial market analysts.

The shekel exchange rate rose after the decision, rising by 2.4 percent to 3.68 percent against the dollar, heading toward its best daily performance this year.

The shekel recovered most of the losses it incurred last week, when Iran's threat to retaliate against Israel over a deadly missile attack on one of Tehran's embassy buildings in Syria worried markets.

The Bank of Israel statement quoted Governor Amir Yaron as saying, “In light of recent developments, which indicate a significant increase in geopolitical uncertainty, the Monetary Committee decided to be cautious and left the interest rate unchanged.”

Although inflation in Israel fell to 2.5 percent on an annual basis last February, within its target range of 1 percent to 3 percent, the Bank of Israel studied the extent of uncertainty about when the war in Gaza will end and how tensions with Iran will end.

The Israeli occupation war on the Gaza Strip entered its seventh month on Sunday, amid expectations that it will lead to an increase in the budget deficit to 6.6 percent of the gross domestic product in 2024, up from nearly 4 percent in 2023.