Bank of Israel Holds Key Rate at 3.25%

The Bank of Israel left its benchmark interest rate unchanged at 3.25% at its latest meeting, its lowest level since 2022, following three consecutive rate cuts. Annual inflation stood at 1.6%, below the midpoint of the 1%-3% target range. Policymakers noted that inflation moderated, helped by a strong shekel against the dollar, and expected it to remain around the midpoint of the target range. They also pointed to high uncertainty amid geopolitical tensions, although the risk premium remained broadly stable, and to economic activity that appeared to have slowed at the start of Q3, after expanding 15.4% annualized in Q2. Future decisions will focus on price stability, while providing support for economic activity.

The Bank of Israel cut its policy rate by 25 bps to 3.25% at its September 2026 meeting, contrary to market expectations for rates to remain unchanged. It was the third consecutive rate cut, bringing the policy rate to its lowest level since 2022. Policymakers noted that inflation had moderated, with the current rate of inflation below the midpoint of the 1%–3% target range, helped by a strong shekel against the dollar. At the same time, economic activity expanded 15.4% annualized in Q2, the fastest pace in more than two years. Excluding prodution abroad, growth in the first half of the year was more moderate. Still, policymakers also noted high uncertainty amid geopolitical tensions, although the risk premium remained broadly stable. Looking ahead, inflation is expected to remain around the midpoint of the target range, while economic activity appears to have slowed at the start of Q3. Future decisions will focus on price stability, while providing support for economic activity.

The Bank of Israel lowered its policy rate by 25 bps to 3.50% at its July 2026 meeting, as anticipated, delivering a second straight rate cut and bringing the policy rate to its lowest level since 2022. memorandum of understanding between the US and Iran. Policymakers noted that inflation remained around the midpoint of the target range in May, while Israel's risk premium returned to pre-October 2023 levels. Annual inflation held at 1.9% for a third straight month in May, remaining well within the Bank of Israel's 1%–3% target range. Governor Amir Yaron said forecasts show inflation easing to around the midpoint of the target range over the next year, allowing for further policy easing. Meanwhile, the central bank added that recent indicators point to a continued economic recovery following the slowdown at the start of the conflict with Iran, with GDP projected to grow 4.0% in 2026 and 5.5% in 2027.