The Bank of Israel kept interest rates steady on Monday in an effort to support financial markets and boost its economy, which has taken a battering due to the continued war in Gaza.
Israel's monetary committee maintained its benchmark rate at 4.5 per cent, the central bank said on its website.
“The monetary committee’s discussions that were held in the past two days naturally focused on the economic impacts of the war. The monetary committee analysed the various processes and their impact on economic activity and on inflation, and after the discussions, the committee decided to leave the interest rate unchanged at 4.5 per cent,” Bank of Israel governor Amir Yaron said in a statement.
"Expectations for one year ahead also increased slightly recently. The interest rate path will be determined in accordance with the continued convergence of the inflation rate to its target, continued stability in financial markets, economic activity, and fiscal policy."
He added that there is still "uncertainty related to the impacts of the war on inflation processes".
The latest rate decision follows the Bank of Israel's January move to slash its benchmark interest rate by 0.25 basis points, marking the first cut since April 2020.
The war in Gaza, which began on October 7 after a deadly attack by Hamas, has turned into a human tragedy as Israel has maintained a relentless bombing campaign in retaliation.
About 30,000 Palestinians have been killed since the fighting started, according to the Palestinian Health Ministry.
The US has been Israel's biggest supporter throughout the conflict, providing weapons and ammunition and thrice vetoing UN Security Council resolutions calling for an immediate ceasefire.
The war severely damaged Gaza's civil and residential infrastructure and its gross domestic product is now projected to shrink by 3.7 per cent, from a previous growth forecast of 3.2 per cent, with the economy at a “near-complete standstill”, according to World Bank data.
Israel’s economy has also taken a severe hit and contracted by an annualised 19.4 per cent in the fourth quarter, the country’s Central Bureau of Statistics said earlier this month.
Overall, its economy grew 2 per cent for the whole of 2023, compared with 6.5 per cent in the previous year.
“The contraction of the economy in the fourth quarter of 2023 was directly affected by the outbreak of the Iron Swords War on October 7,” the statistics agency said at the time, citing initial estimates.
Moody’s Investors Service this month also downgraded the country's credit rating from “A1" to “A2" with a negative outlook.
“The main driver for the downgrade of Israel's rating is Moody's assessment that the continuing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel, as well as weaken its executive and legislative institutions and its fiscal strength for the foreseeable future,” it said.
Mr Yaron said it appears that the risks noted by Moody's have "already been priced in by investors, and in the financial and foreign exchange markets, an additional significant impact of the credit rating downgrade has not been seen".
"To strengthen the trust of the markets and ratings companies in Israel’s economy, it is important that the government and Knesset act to deal with the economic issues raised in the report, which in large part are very similar to the recommendations raised in the past by the Bank of Israel and other entities," he added.
"These will require structural changes in government ministries and prioritising growth drivers."
In the coming years, Israel's budget deficit will be significantly larger than expected before the conflict, Moody’s said.
The Bank of Israel estimates the cost of the conflict for the years 2023 to 2025 to stand at about 255 billion shekels ($64.4 billion) or 13 per cent of the 2024 forecast GDP, which includes both higher defence and civilian spending, as well as lower tax revenue.
It raised last year's budget deficit from less than 2 per cent to 4.2 per cent of GDP in the supplementary budget approved in mid-December.
The revised budget for this year sets a deficit of 6.6 per cent of GDP, compared with a pre-conflict forecast of about 2.5 per cent.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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SERIE A FIXTURES
Friday Sassuolo v Benevento (Kick-off 11.45pm)
Saturday Crotone v Spezia (6pm), Torino v Udinese (9pm), Lazio v Verona (11.45pm)
Sunday Cagliari v Inter Milan (3.30pm), Atalanta v Fiorentina (6pm), Napoli v Sampdoria (6pm), Bologna v Roma (6pm), Genoa v Juventus (9pm), AC Milan v Parma (11.45pm)
Previous men's records
- 2:01:39: Eliud Kipchoge (KEN) on 16/9/19 in Berlin
- 2:02:57: Dennis Kimetto (KEN) on 28/09/2014 in Berlin
- 2:03:23: Wilson Kipsang (KEN) on 29/09/2013 in Berlin
- 2:03:38: Patrick Makau (KEN) on 25/09/2011 in Berlin
- 2:03:59: Haile Gebreselassie (ETH) on 28/09/2008 in Berlin
- 2:04:26: Haile Gebreselassie (ETH) on 30/09/2007 in Berlin
- 2:04:55: Paul Tergat (KEN) on 28/09/2003 in Berlin
- 2:05:38: Khalid Khannouchi (USA) 14/04/2002 in London
- 2:05:42: Khalid Khannouchi (USA) 24/10/1999 in Chicago
- 2:06:05: Ronaldo da Costa (BRA) 20/09/1998 in Berlin
Australia tour of Pakistan
March 4-8: First Test, Rawalpindi
March 12-16: Second Test, Karachi
March 21-25: Third Test, Lahore
March 29: First ODI, Rawalpindi
March 31: Second ODI, Rawalpindi
April 2: Third ODI, Rawalpindi
April 5: T20I, Rawalpindi
