Bucking expectations, the Bank of Israel on Monday decided to lower interest rates for a second straight time as it projects the economy will recover faster than expected from the repercussions of the two-year war with the Hamas terror group, while the inflation environment is poised to moderate.

The central bank cut borrowing costs by 25 basis points from 4.25 percent to 4%. In its previous rate decision in November, it had reduced the benchmark lending rate for the first time in almost two years to 4.25% from 4.5%, following a ceasefire agreement with Hamas.

“The past year was marked by security-related and economic uncertainty, similar to the year before it,” Bank of Israel Governor Amir Yaron said at a press conference in Jerusalem. “Since the ceasefire agreement, we have seen changes in a number of economic indicators, including the inflation environment moderating more than we had previously expected, and the shekel strengthening, which is expected to help reduce inflation pressures.”

“The most recent labor market data indicate…an increase in participation and employment rates, a decrease in the share of those absent due to military reserve duty, and a decline in the growth rate of business sector wages. All of these indicators together have allowed us to lower interest rates now,” said Yaron.

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