{"id":193017,"date":"2026-07-06T17:42:11","date_gmt":"2026-07-06T17:42:11","guid":{"rendered":"https:\/\/www.europesays.com\/iran\/193017\/"},"modified":"2026-07-06T17:42:11","modified_gmt":"2026-07-06T17:42:11","slug":"central-bank-trims-borrowing-costs-to-2022-low-sees-room-for-further-rate-cuts","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/iran\/193017\/","title":{"rendered":"Central bank trims borrowing costs to 2022 low, sees room for further rate cuts"},"content":{"rendered":"

The Bank of Israel on Monday decided to lower interest rates, following the US deal with Iran, eased global geopolitical tensions, and a stable inflation environment, and said it sees the economy growing at a slightly faster pace this year.<\/p>\n

The central bank reduced interest rates from 3.75 percent to 3.5%, the lowest level since November 2022. It marked the third rate cut this year, after borrowing costs for households and businesses came down in May and January.<\/p>\n

\u201cThe Memorandum of Understanding (MOU) signed between the US and Iran led to a decline in energy prices and moderation in global geopolitical tension,\u201d Bank of Israel Governor Amir Yaron said at a press conference in Jerusalem. \u201cHowever, the level of uncertainty remains high\u2026tension continues in the north, and its ramifications continue to be reflected in economic activity.\u201d<\/p>\n

Finance Minister Bezalel Smotrich, who in recent months repeatedly criticized the central bank\u2019s conservative monetary policy, called for steeper interest rate cuts to ease the financial plight of households and businesses, and help weaken the strong shekel, which is harming exporters.<\/p>\n

\u201cThe minimal interest rate reduction does not match the challenges facing households and businesses, is not aligned with the needs of the economy, and makes things harder for the high-tech sector and exporters,\u201d Smotrich lamented. \u201cA sharp reduction in the interest rate is the step needed that will ease the cost of living and balance the strengthening of the shekel.\u201d<\/p>\n

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Over the past year, the shekel, which recently reached a 33-year high, has risen by as much as 20% against the dollar despite an economy strained by military campaigns in Iran, Lebanon, and Gaza. The strength of the local currency has been driving up local operational costs, forcing tech exporters and startups to make tough decisions about sweeping layoffs, hiring abroad, and moving R&D centers out of Israel, stirring fears about future growth.<\/p>\n

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\n\t\tIllustrative. A shekel and a $100 bill, April 13, 2026. (Nati Shohat\/Flash90)<\/p>\n

\u201cGiven the severity of the crisis facing Israeli exports and industry, the central bank\u2019s move is insufficient,\u201d said the Israel Manufacturers\u2019 Association following the rate decision. \u201cThe decline in the economy\u2019s risk level sets the conditions for further and steeper interest rate cuts that would safeguard Israel\u2019s key growth engines and support investment and employment.\u201d<\/p>\n

Yaron acknowledged that the \u201csharp appreciation of the shekel in the recent period poses significant challenges for the export and high-tech sectors, which are key growth drivers of the Israeli economy.\u201d<\/p>\n

The Bank of Israel\u2019s research staff expects inflation during 2026 and 2027 to hover around 1.8%, well within the government\u2019s price target range of 1% and 3%. Over the coming year, the central bank forecast that interest rates would be lowered to 3%.<\/p>\n

\u201cTo the extent that inflation expectations decline more aggressively, and especially if they approach the lower bound of the target range, it will justify more accommodative monetary policy, and at faster paces,\u201d Yaron said.<\/p>\n

Still, the governor also cautioned that the inflation environment was greatly influenced by \u201cgeopolitical developments in the region and their effects on economic activity and on energy prices,\u201d as well as \u201cfiscal developments,\u201d including the possibility of an increase in the defense budget.<\/p>\n

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\n\t\tIllustrative: A woman carries her shopping near Talpiot Market in Haifa on August 4, 2024. (Canaan Lidor\/Times of Israel)<\/p>\n

Alongside the rate decision, the central bank said it expected the economy to grow by 4% in 2026, up from its March forecast of 3.8%. In 2027, the pace of growth is expected to pick up to 5.5%, similar to the previous forecast. Israel\u2019s economy grew 2.9% in 2025, which was overshadowed by the war with the Hamas terror group in \u2060Gaza for most of the year and fighting on multiple fronts with Iran-backed proxies.<\/p>\n

\u201cEconomic activity continues to recover gradually, against the backdrop of domestic and global uncertainty,\u201d said Yaron. \u201cThe economy is facing what I have termed a \u2018fiscal trilemma\u2019 \u2014 the challenge of putting the debt-to-GDP ratio on a declining path while financing defense expenditure and investing in growth drivers.\u201d<\/p>\n


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