BANK OF ISRAEL SAYS INFLATION A CONCERN AS GAZA WAR CONTINUES

Middle East Most Read

Tue 27 May 2025:

Accelerating inflation is worrisome for Israel’s economy despite a modest recovery during the ongoing war on Gaza, the central bank warns.

Officials said short-term interest rates would remain low.

“In view of the continuing war, the monetary committee’s policy is focusing on stabilising the markets and reducing uncertainty, alongside price stability and supporting economic activity,” the bank said.

“In the committee’s assessment, there are several risks for a possible acceleration of inflation or for it not converging to the target range: geopolitical developments and their impact on economic activity, supply constraints, worsening global terms of trade, and volatility of the shekel,” it added.

While the inflation rate was below the 3 percent level in the first half of 2024, it has been hovering between 3.2 percent and 3.8 percent since July 2024. The bank said the labour market remains tight.

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Although “Israel’s” economy grew by 3.4% in Q1 2025, boosted by a temporary two-month ceasefire, that growth is unlikely to persist. Since the end of the truce, “Israel” has intensified its aggression on Gaza, aiming to expand control over 75% of the territory within two months, up from 40% currently, as per the report. The war has strained the labor market, disrupted supply chains, and further complicated the economic impact of the war on Gaza.

Domestically, political instability is adding another layer of uncertainty. Israeli Prime Minister Benjamin Netanyahu’s appointment of a new Shin Bet chief, made in defiance of legal counsel, has heightened tensions between the executive and state institutions. Bank of Israel Governor Amir Yaron has warned that weakening institutional independence could undermine long-term economic growth.

Despite inflationary concerns, analysts believe rate cuts remain unlikely in the short term. Yaron has previously indicated that reductions could begin in the second half of 2025, contingent on inflation slowing and broader market risks being contained.

SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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