The Bank of Israel on Monday decided to lower interest rates by 0.25 percentage points, citing a strong shekel and stable inflation environment, but warned that geopolitical uncertainty over the war with Iran remained “significant.”

As was widely anticipated, the central bank, led by Governor Amir Yaron, trimmed borrowing costs from 4% to 3.75%, marking the second rate cut this year. In its previous two rate decisions in March and February, the Bank of Israel left borrowing costs on hold, after two cuts in November and January.

“With the outbreak of the US-Israel war with Iran in February, the central bank paused rate cuts because of the uncertainty around defense spending and the impact of hostilities on the economy and inflationary pressure,” IBI investment house chief economist Rafi Gozlan told The Times of Israel. “With the talks over an agreement to end the war indicating a decline in geopolitical risk, and a strong shekel curbing price increases, keeping inflation stable, the central bank felt comfortable adjusting interest rates downwards.”

US President Donald Trump declared over the weekend that the US and Iran were on the cusp of finalizing a deal to end the war launched jointly by the US and Israel against the Islamic Republic on February 28. However, Iran and the US on Monday played down hopes for an imminent signing of an agreement to end the war, which has been in a fragile ceasefire since early April.

“There is still significant geopolitical uncertainty, both domestically and globally,” the central bank said in a statement. “Operation Roaring Lion had an impact on real economic activity, and the most recent data show a recovery.”

The central bank noted that “inflation in Israel remains around the midpoint of........

© The Times of Israel