Back to Markets
Forex▲ Bullish
Israel Shekel Strength Spurs Third Rate Cut in Six Months
Bank of Israel cuts rate third time in six months, citing shekel appreciation and stable inflation. Explaining the currency-policy feedback loop and next decision points for USD/ILS traders.
Continue with
The Bank of Israel lowered its benchmark interest rate for the third time in six months on Monday. Policymakers pointed to a sustained appreciation of the shekel and inflation that remains stable despite the ongoing war. The move makes the central bank one of the few developed-world peers currently easing policy.
Shekel Appreciation Opens Policy Room
The simple read is that the Bank of Israel sees enough disinflationary momentum from the currency itself to cut without reigniting price pressures. A stronger shekel suppresses import costs directly, which gives the central bank cover to reduce borrowing costs. The shekel has rallied over recent months, partly because Israel's tech sector continues to attract capital inflows that offset war-related risk premiums. That inflow has acted as a natural tightening mechanism, allowing the central bank to ease policy.
The more nuanced view focuses on the feedback loop between currency and policy. The Bank of Israel is effectively letting the exchange rate do some of the inflation-fighting work. Lower rates then reduce upward pressure on the shekel by narrowing the yield advantage. This dynamic may continue if global risk appetite holds. A deterioration in the security situation would reverse the shekel's gains quickly, however, and force a hawkish pivot. The central bank's caution on geopolitical uncertainty in its statement suggests it is aware that the currency strength is fragile.