Israel left interest rates unchanged for the first time in over a year, halting a record cycle of monetary tightening despite the threat to inflation from a new bout of currency depreciation.

The decision to hold the benchmark at 4.75% was in line with the forecasts of most economists surveyed by Bloomberg. The monetary committee in a statement repeated its guidance that the future “rate path will be determined in accordance with activity data and the development of inflation.”

The pause follows a bigger-than-anticipated slowdown in annual inflation after 10 straight hikes brought official borrowing costs from near zero to their highest level since 2006. With price growth now below an annual 5%, Israeli real rates have turned positive for the first time in more than two years.

But the shekel has complicated the calculus for the central bank since Prime Minister Benjamin Netanyahu’s far-right coalition initiated plans to reduce the power of the courts, triggering mass protests from opponents who fear an erosion of the country’s democracy. Political uncertainty linked to the proposed overhaul already forced more tightening than the central bank first envisaged.

Following a breather when the plan was suspended in March, the currency has come under pressure again after Netanyahu’s government introduced legislation aimed at removing another judicial power — using “reasonableness” as a basis for court decisions. Legislators are looking to pass that law by the end of the month.

With a loss of over 9% against the dollar, the shekel is among the worst performers since late January among the basket of expanded major currencies tracked by Bloomberg. Governor Amir Yaron has said the depreciation this year accounts for one percentage point of Israel’s inflation.

Although economic growth has cooled off, the labor market remains tight and inflation has been above the government’s 1% to 3% target range for over two years. Israel’s one-year currency swaps indicate investors see the base rate rising closer to 5% a year from now.

“We expect shifts in the domestic political landscape to continue to drive the dollar-shekel pair in coming weeks, and we expect volatility to stay elevated,” Goldman Sachs Group Inc. analysts including Kamakshya Trivedi said in a report.

--With assistance from Harumi Ichikura.