US interviews survivors of Hamas 7 October attack; Bank of Israel unveils new outlook while war persists

Israel’s central bank unveiled a new outlook that assumes the country faces a longer and more intense war, as it held interest rates for a fourth consecutive time.

Governor Amir Yaron, speaking to reporters on Monday after leaving the benchmark at 4.5%, said officials now expected the conflict against Hamas in Gaza to wind down only in early 2025. The latest staff projections from the bank showed the key rate would probably be at 4.25% in the second quarter of 2025, a more hawkish path than implied earlier.

US interviews Hamas hostage victims, families in terror probe

The US Justice Department was interviewing survivors and families of victims of Hamas’ 7 October attack in Israel as it attempts to build a sweeping case against the militant group and its financial backers.

The individuals, including former hostages and families of US citizens murdered abroad, have sat down with prosecutors and FBI agents in recent months, according to people familiar with the investigation. Some have travelled from Israel and provided videos and text messages to help authorities build a chronology of the attack and identify who carried out the kidnappings.

While part of the US probe is looking at acts of terrorism, a broader focus is tackling the financial networks that have enabled Hamas. That includes examining any support from countries such as Iran and Qatar, and whether financing touched US financial institutions or assets, one of the people familiar with the inquiry said. The investigation involves prosecutors from US Attorneys’ offices in New York, Washington and the Justice Department’s Counterterrorism Section.

A spokesperson for the Justice Department declined to comment.

US citizens were among the about 1,200 people killed and 250 others taken hostage when Hamas operatives poured into Israel and stormed towns, army bases and a music festival. About 31 Americans were killed on 7 October and as many as six remain in captivity, giving prosecutors a way to pursue the crimes, even though they were committed overseas. Hamas is designated a terrorist organisation by the US and European Union.

At the same time, US support of Israel in the ensuing war has become a divisive issue for some voters ahead of the presidential election in November. Almost 38,000 Palestinians have been killed in Gaza since the Israel-Hamas war erupted, according to the Hamas-run health ministry.

The US has put itself at the centre of delicate ceasefire negotiations in a bid to prevent the conflict from spreading across the Middle East. Qatar, which previously provided funding to Gaza and hosts Hamas’ political bureau, also stepped into the role of mediator when the war began, leveraging its relationship with Hamas to help broker the release of some hostages.

Iran has been targeted repeatedly by the US over the years for supporting terrorist groups, and indictments were filed as recently as February against senior leaders of the Islamic Republic’s Revolutionary Guard Corps. Iran, along with Syria, is also facing a new wave of lawsuits filed on behalf of hostage victims and their families for providing the firepower and financial support to enable the attack.

In cases where people facing criminal charges have been hard to detain, prosecutors have coupled indictments with civil forfeiture actions, allowing the government to seize assets. In terrorism cases, seized funds can be potentially redirected into a reserve for US victims of state-sponsored terrorism.

Federal prosecutors in Washington and New York seized more than 500,000 barrels of oil and $108-million when they charged leaders of Iran’s Islamic Revolutionary Guards Corps in February with terrorism and sanctions evasion. The US alleged that funds from oil trafficking allowed Iran to support Hamas and Hezbollah, which has also been designated a terrorist organisation by the US. Billions of dollars from the oil laundering network passed through the US financial system, the government revealed at the time.

Bank of Israel sees longer war and less room for rate cuts

Israel’s central bank unveiled a new outlook that assumes the country faces a longer and more intense war, as it held interest rates for a fourth consecutive time.

Governor Amir Yaron, speaking to reporters on Monday after leaving the benchmark at 4.5%, said officials now expected the conflict against Hamas in Gaza to wind down only in early 2025. The latest staff projections from the bank showed the key rate would probably be at 4.25% in the second quarter of 2025, a more hawkish path than implied earlier.

The central bank’s research department now anticipates faster inflation and slower economic growth this year compared with forecasts from April.

“Due to the revised assumption regarding the duration of the fighting, our assessment is that the risk premium, which rose due to the war, will decline more gradually than we assumed,” the research staff said in a report. “A higher interest rate will be necessary in order to stabilise inflation.”

The shekel traded 0.1% weaker, at 3.68 against the dollar, as of 8.50pm in Tel Aviv.

While talks on a ceasefire in Gaza have resumed, Prime Minister Benjamin Netanyahu’s government has warned of the possibility of an all-out war with Iran-backed Hezbollah in Lebanon. The group is considered far more powerful than Hamas in terms of numbers of fighters and the size of its arsenal of missiles and rockets.

“Economic implications would clearly be of larger scale compared to the present war in Gaza,” Andrew Abir, the central bank’s deputy governor, said in an interview after the rate decision. “It’ll be an event that would be much more severe in terms of its impact on the Israeli economy. I think at the moment markets are giving a fairly low probability to such an event.”

The central bank’s timeline for the war in Gaza is roughly in line with the views of the country’s national security adviser, Tzachi Hanegbi. In late May, he said Israel probably won’t be able to defeat Hamas before the end of the year.

An escalation of hostilities across the northern border with Hezbollah could cause further depreciation of the shekel, which is down by almost 3.5% since the start of March. It would also lead to supply disruptions and a greater fiscal burden for Israel, all of which would intensify inflationary pressures.

Government spending has already soared because of the war, putting Israel on track for one of its widest budget deficits this century.

Finance Ministry data published on Monday showed the 12-month trailing fiscal shortfall ballooned to 7.6% of gross domestic product as of June, higher than the government’s estimate of 6.6% for the full calendar year of 2024.

Yaron said the government would need to make adjustments in next year’s budget, totalling 30 billion shekels ($8.2-billion), to bring the deficit down. DM

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