To keep interest rates steady at 4.5% decided on Monday by the Israeli bank, citing “High political uncertainty”. By sending a clear message to Benjamin Netanyahu, in view of his meeting with Donald Trump, the Central Bank warned of slowing economic growth for the current year in the midst of the continued war with Hamas and concerns about isolation.

“The Israeli economy continues to operate in an environment of high geopolitical uncertainty in view of the intensification of battles in Gaza and the deterioration of the international climate against Israel »the Central Bank typically says in its announcement.

It provides that the economy will grow by 2.5% in 2025, from a previous growth estimate of 3.3% in July. But it slightly increases growth assessment for 2026 from 4.6% to 4.7%, assuming that “Gaza battles continue with increasing intensity and will be completed in the first quarter of 2026”.

The Bank of Israel has chosen not to reduce borrowing costs, even when annual inflation in August fell to 2.9% and moved within the government’s target from 1% to 3% for the first time in more than a year, Times of Israel commented.

Central banker warning

Israeli Bank Governor Amir Yaron noted that the estimate for lower growth this year is due to the possibility of prolonging the war and, as a result, the restrictions on supply and the adverse effects on Israel will continue.

The prolongation of war in Gaza will continue to adversely affect investment and economic recovery and broaden the budget deficit, which will increase inflation and maintain high interest rates has warned.

“A truce would reduce the restrictions on offer and support the financial expansion” The head of Israeli Central Bank stressed

Israel has to do everything it can to enhance its international position and ensure that its economy is open, business friendly and robust, Yaron emphasized.