Oil price spike due to Iran war kept Israel rates on hold last month, minutes show

By Steven Scheer

JERUSALEM, April 13 (Reuters) - Higher energy prices stemming from the conflict with Iran and concerns this will fuel inflation led Israeli policymakers to hold interest rates steady on March 30 for the second straight month, minutes of the discussions showed on Monday.

At the policy meeting, all four members of the Bank of Israel's Monetary Policy Committee voted to leave the short-term interest rate unchanged at 4%.

The MPC had cut the key rate in November and again in January before standing pat the last two meetings due to inflationary concerns stemming from the U.S.-Israel conflict with Iran. The U.S. and Israel began attacking Iran on February 28. Iran all but shut the Strait of Hormuz and oil prices jumped in response. The fighting stopped on April 8, but the ceasefire remains fragile.

MPC members noted that while the annual inflation rate edged up to 2.0% in February - within an official 1-3% annual target range - the data did not reflect the rise in energy prices. "These will be reflected in the coming months," the minutes said.

As a result, the central bank sees inflation at a 2.3% rate in 2026, up from a previous estimate in January of 2.0%.

"The Committee's assessment is that there are increased risks of a renewed increase in inflation - geopolitical developments and their impact on economic activity and on energy prices, increased demand alongside supply constraints, and fiscal developments," the bank said, also citing labour supply constraints.

As such, the bank and forecasters now see perhaps one rate cut in 2026, versus as many as four prior to the Iran air war. Bank of Israel Governor Amir Yaron has not ruled out rate reductions this year depending on inflation developments.

Economic growth is also projected to be far smaller this year than previously expected - 3.8% versus 5.2%.

One bright spot for inflation has been a stronger shekel versus the dollar, reaching a 1995 peak last week along with record high share prices in Tel Aviv. (Reporting by Steven Scheer; Editing by Andrew Cawthorne and Hugh Lawson)