- Decision
- Maintain
- Rate change
- 0 bps
- interest rate
- 4.5%
The Monetary Committee of the Bank of Israel left the policy rate at 4.50 % on 24 February 2025, judging that a still-tight labour market, inflation of 3.8 %—above the target ceiling partly on tax hikes—and only moderate GDP recovery warranted continued caution while expecting price growth to fall back inside the target range in H2. The rate has been unchanged at 4.50 % since at least the previous decision in January. Annual GDP expanded just 1 % in 2024 and Q4 growth slowed to a seasonally adjusted 2.5 % as domestic demand met supply constraints, while house prices climbed 7.3 % last year and unemployment fell to 2.8 % in January, underscoring lingering capacity pressures. Externally, the shekel has strengthened 1.9 % against the USD since the last meeting and Israel’s 5-year CDS spread has narrowed, though it remains wider than before the war. The Committee noted ongoing global but moderating growth, mixed inflation trends abroad and further rate cuts by several advanced-economy central banks. It reaffirmed that future moves will hinge on inflation’s convergence to target, financial-market stability, economic activity and fiscal policy developments.
Rate evolution
From July 2025 to September 2026, the Bank of Israel reduced the interest rate by 125 basis points to 3.25 percent, after holding at 4.5 percent through September, cutting twice as disinflation became more established, pausing at 4.0 percent amid renewed conflict, and then resuming easing. The early holds reflected inflation still above or near the top of the target range, high inflation volatility, a tight labor market, and only moderate recovery in activity, all against high geopolitical uncertainty, with the Committee repeatedly citing risks from geopolitical developments, demand rising alongside supply constraints, worsening global terms of trade, and later fiscal developments. As inflation moved into the target range, expectations stayed around the midpoint, the shekel appreciated, and Israel’s risk premium declined, the Committee cut in November and January even as it noted a sharp rebound in activity, persistent labor tightness, and firm wage growth.
In the subsequent decisions, the Committee held in February and March as uncertainty around Iran resurfaced, energy prices lifted the inflation environment, and housing and labor supply pressures remained evident, then cut in May and July as inflation stayed around the midpoint, risk premia returned near prewar levels, and activity recovered after Operation Roaring Lion. The July decision also reflected lower energy prices and more moderate global geopolitical tension following the memorandum of understanding signed between the United States and Iran, even as the shekel had depreciated with high volatility, the labor market remained tight, wage growth was rapid, and housing inflation picked up. On September 1, the Committee cut by a further 25 basis points as inflation moderated below the midpoint, while noting that growth partly reflected recovery from Operation Roaring Lion, activity excluding production abroad by Israeli firms was more moderate, the labor market remained tight, and geopolitical uncertainty remained high, and reiterated that future moves would depend on inflation, economic activity, geopolitical uncertainty, and fiscal developments.