Bank of Israel says Iran war requires 'careful fiscal management'

JERUSALEM, March 11 (Reuters) - The Bank of Israel on Wednesday cautioned the government to stick to "careful fiscal management" in funding the air war against Iran and to avoid allocations for new programmes not required for war effort.

Israel's cabinet on Tuesday approved boosting defence spending in 2026 by tens of billions of shekels, while raising the budget deficit target to 5.1% of gross domestic product from 3.9%.

The central bank in response said the war budget should not include items that do not contribute to long-term growth or tax cuts. It added that the geopolitical environment created by the conflict "tilts risks to economic activity to downside, at least in short term."