BANK OF ISRAEL SOUNDS ALARM ON ECONOMIC EFFECT OF GROWING ISOLATION

Tue 30 September 2025:

The Bank of Israel has kept short-term interest rates unchanged, citing Israel’s push deeper into Gaza along with persistent inflation, while warning of the effect of the country’s growing global isolation.

In a news conference after the decision, Bank of Israel Governor Amir Yaron cautioned that Israel’s deteriorating reputation over Gaza could damage trade, foreign investment and the economy as a whole.

“Israel depends to a considerable extent on its participation in the global economy,” Yaron said. “Therefore, Israel must do all that it can to strengthen its international standing, and thus ensure that the economy is open.”

Yaron warned that the continuation of the conflict would lead to further supply constraints and weigh on recovery.

“As a direct result, growth would be lower, the budget deficit would expand, and the paths of inflation and the interest rate would be higher,” he said.

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Earlier in September, 2025, dozens of Israel’s leading economists warned that a full military reoccupation of the Gaza Strip would push Israel into an unprecedented economic downturn.

In a statement reported Monday by the Israeli outlet Walla, more than 80 academics and former senior officials at the Finance Ministry and Bank of Israel said the plan would “weaken Israel’s financial foundations” and create a direct threat to national security.

They argued that the cost of administering Gaza, combined with military spending, would require tens of billions of shekels and force tax increases, cuts to public services, and potentially a downgrade of Israel’s credit rating. The statement also cited risks of capital flight, reduced productivity, and a growing debt burden.

“An economy under such pressure cannot sustain the war effort over time,” the economists said, adding that brain drain and falling investment would further erode Israel’s competitiveness. They warned that European partners and other trading allies could impose sanctions, worsening the downturn.

The Israeli army has continued a brutal offensive on the Gaza Strip, killing more than 65,000 Palestinians since October 2023. The military campaign has devastated the enclave, which is facing famine.

Last November, the International Criminal Court issued arrest warrants for Netanyahu and his former Defense Minister Yoav Gallant for war crimes and crimes against humanity in Gaza.

Israel also faces a genocide case at the International Court of Justice for its war on the enclave.

SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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