AhlulBayt News Agency (ABNA): Israel’s monetary policy has entered a more complex phase due to the ongoing war against Iran and the expanding economic repercussions, where inflationary pressures intersect with sluggish economic growth and increasing fiscal burdens.
According to Al Jazeera, indicators show that economic policymakers are striving to balance curbing inflation with supporting economic growth, under conditions where domestic markets are affected by severe volatility and direct consequences of energy market disruptions and the closure of vital maritime passages.
Projections indicate that the Bank of Israel is highly likely to keep its base interest rate unchanged at 4 percent for the second consecutive meeting, coinciding with the release of new economic forecasts, the first time since the war against Iran began.
This approach reflects the prevailing view among economists, and it is expected that Bank of Israel Governor Amir Yaron will provide details of these forecasts in a press briefing.
Projections suggest that the U.S.-Israel war against Iran continues to intensify inflationary pressures domestically and globally, particularly due to rising energy costs and disruptions in supply chains, especially following the closure of the Strait of Hormuz.
Economic growth in Israel is projected to decline. Some analysts predict a growth rate of around 4 percent with downward risks, while others believe that if the war ends prematurely, growth may be limited to approximately 3 percent.
Previously, the Bank of Israel’s governor had forecasted economic growth of about 5.2 percent and a budget deficit of 3.9 percent, but with rising deficits and declining growth, the likelihood of an increased government debt-to-GDP ratio has risen.
Financial institutions have revised upward their inflation forecasts for Israel, and it is expected that inflation will reach approximately 2.2 percent over the next 12 months, above the Bank of Israel’s target midpoint.
A warning has been issued that a prolonged war could further increase inflation. Some projections suggest a limited potential reduction in interest rates next year, but if pressures ease, rates could fall to around 3.5 percent.
Financial projections reflect the expanding impact of the war against Iran. Israel’s parliament has approved the 2026 budget with adjustments that include adding approximately 39 billion shekels (about 12.4 billion USD) to defense spending and raising the targeted budget deficit to 4.9 percent of GDP.
It is also projected that Israel’s budget deficit for the current fiscal year will reach around 5.7 percent, significantly higher than the 4.7 percent recorded in 2025.
Indicators show that the military mobilization of the Israeli armed forces is exerting pressure on the labor market, and the reduction in workforce could lead to new severe inflationary bottlenecks.
**************
End/ 345E
