JERUSALEM, Jan 1 Reuters The Bank of Israel lowered shortterm borrowing rates for the first time in nearly four years on Monday, becoming the first developed country to ease policy, while urging lawmakers to rein in spending that has soared during Israel39;s war with Hamas.

In reducing interest rates for the first time since April 2020, the central bank cited a stabilisation of financial markets since the outbreak of the war on Oct. 7, declining inflation and weaker economic growth.

But Bank of Israel Governor Amir Yaron said the pace of future cuts partly depended on fiscal policy and how Prime Minister Benjamin Netanyahu39;s government of far right wing and religious parties would keep to responsible fiscal policy.

He told reporters that defence and civilian costs of the war were expected to reach 210 billion shekels 58 billion and would be a budgetary burden that needed to be dealt with through spending reductions in areas that were not crucial to the war and by raising revenue, usually meaning higher taxes.

If the markets perceive that Israel is moving toward a prolonged path of rising debt it is likely to lead to increased yields, depreciation and inflation, such that a higher central bank interest rate will be required, said Yaron, who was just approved for a second and final fiveyear term as governor.

He pointed out the government39;s inaction so far on making needed budget adjustments such as cutting back redundant ministries, without giving details of…