JERUSALEM The Bank of Israel kept short-term borrowing rates unchanged for a third straight decision as expected on Monday, as policymakers worried about reigniting inflation despite a weakening economy as a result of Israel's war against Hamas.

The central bank held its benchmark rate at 4.75% - its highest level since late 2006. It had raised rates 10 straight times in an aggressive tightening cycle that has taken the rate from 0.1% last April before pausing in July and again in August.

The inflation rate eased to 3.8% in September from 4.1% in August to remain above an annual target range of 1-3%.

Officials have cautioned that steep rate cuts at the moment would further weaken the shekel that is already at an 8 1/2 year low versus the dollar and push up inflation.

(Reporting by Steven Scheer; Editing by Sharon Singleton)