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Israel Cuts Interest Rate

James Boston
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Israel Cuts Interest Rate

The Bank of Israel has just announced an unexpected cut to the country’s base interest rate at the conclusion of this month’s monetary policy meeting. The key interest rate has been reduced to 0.50% from 0.75%.

Despite the on going conflict in the region the Israeli economy is proving to be very resilient. The deputy governor of the Bank of Israel, Nadine Baudot Trajtenberg, claimed in a speech last week in Montreal that impact of the war was having no more effect on the economy than ‘a bad winter storm’. The effective closure of the country’s main airport due to the cancellation of international flights however would suggest that there is potential for some economic disruption down the road. It is too early to suggest that any international economic sanctions would be imposed, if however this does occur they are likely to be solely symbolic in nature and most probably will not involve any action by the US.

The Israeli economy is remarkably robust and has sustained itself through numerous conflicts in recent years. Israel is currently at a high point in the economic cycle and this adds to the confidence that any negative impact from the current war will be temporary in nature, particularly if the conflict doesn’t become prolonged. Israel has a strong current account surplus and thanks to domestic gas supplies replacing imported oil as the prime source of energy. Unemployment is at a record low of just under 6% and Israel can expect GDP growth of just over 3% this year. It is this strong and persistent growth that is positioning Israel to weather the economic setback that war brings. Public debt in Israel has fallen to just under 65% of GDP over the past ten years from a high of close to 100%, this is thanks to an average GDP growth rate of 5%.

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