Jerusalem: Israel's central bank kept its benchmark interest rate unchanged at 4% on Monday, citing the ongoing war with Iran as a contributing factor to increased inflationary pressures and a heightened state of uncertainty regarding both domestic and global economic conditions.
According to Anadolu Agency, the bank's latest policy assessment highlights a significant rise in geopolitical uncertainty since the onset of the Iran conflict. This uncertainty is particularly pronounced concerning the potential duration, intensity, and outcome of the hostilities. The bank noted that the inflation environment has deteriorated since its previous rate decision, primarily due to a marked increase in global energy prices. Furthermore, the conflict is exerting pressure on global financial stability and influencing market sentiment.
Despite these challenges, the Israeli financial markets have responded moderately thus far. During the review period, the shekel experienced a 0.8% depreciation against the US dollar, while gaining 1.4% against the euro. The bank observed that fluctuations in Israel's risk premium, exchange rate, and equity prices have remained contained for the time being.
The military campaign is significantly impacting the real economy. Data on credit card purchases in current prices showed a steep 20% decline at the onset of the operation, mirroring the drop observed during the previous conflict with Iran. However, economic activity showed partial recovery after the initial two weeks.
The labor market in Israel remains tight, with wage growth in the business sector rising to 4.7% in the period from November to January. This decision by the central bank comes amid escalating hostilities in the region, following a joint offensive launched by the US and Israel against Iran on February 28. The conflict has resulted in over 1,340 fatalities, including the death of then-Supreme Leader Ali Khamenei.
In response, Tehran has carried out drone and missile strikes targeting Israel, Jordan, Iraq, and Gulf countries hosting US military assets. These retaliatory actions have caused casualties, infrastructure damage, and disruptions in global markets and aviation.